It's a pleasure to be back at IFSA.
Since I spoke to you last August at your conference in Brisbane, much has changed. In my case, I managed to drop the word "Shadow" from my title.
Dropping the word shadow, or coming to government more specifically means that instead of speaking to you about hopes or ideas, I can talk to you about concrete plans and proposals.
In the Assistant treasurer part of the portfolio I am responsible for administering aspects of the Treasury portfolio as delegated to me by the Treasurer.
This includes tax administration and the ATO, administration of APRA, the ABS, the Productivity Commission and the day to day administration of foreign investment.
But I am particularly pleased that the treasurer has given me responsibility for developing policies to promote Australia as a financial services hub within the Treasury portfolio.
One thing that hasn't changed is that IFSA continues to be a strong voice not only for this sector, but for sensible, indeed vital economic reforms that are for the good of the nation.
I notice there has been some debate about this in the financial press in recent times.
I welcome that.
It has been suggested that this sector should not get any extra support, not get any special treatment. I agree.
I don't regard it as special treatment to let this industry compete on a level playing field. I don't regard it as interventionist to simply lift the burden of the world's highest withholding tax rate.
When I studied Ricardo's theory of comparative advantage, he didn't argue that comparative advantage should be determined by which country can most efficiently undertake a task burdened by punishingly high withholding tax rate
He argued that industries should be allowed to compete on a level playing field, and that's exactly what we are doing.
I also don't think that one player in this sector coming into difficulty means that we should be embarrassed about modernising the way Australia's tax system is designed and removing old fashioned elements of the tax system which create for you an administrative burden and a competitive disadvantage.
The financial services sector has untapped potential for growth — both in terms of adding more value to the Australian community, and in its export potential within the Asian region.
When I addressed IFSA in August last year, I asked whether it made sense that your industry — an industry which comprises a larger proportion of our domestic economy than agriculture — exports only about three per cent of the value of its production.
If the 3% figure was a result of market forces and comparative advantage I would accept it.
We all know this is not the case. Countries around the world are designing their tax regimes to encourage more investment in their funds management industries.
We haven't done this, as a result, the value of exports from this sector is under par — we are not realising our potential — because we are competing with one hand tied behind our back.
Other countries have introduced specific tax regimes for collective investment vehicles such as the United States, New Zealand, Ireland and the UK.
The reforms and initiatives I am going to talk to you about today are designed to remedy this state of affairs. To give your industry a level playing field… remove barriers to growth… and let you get on with the job of creating wealth for Australia.
The export potential of Australian funds management services was highlighted last year in a report commissioned by IFSA. The report by Access Economics found that, under a "business as usual" forecast, the financial services industry would, by 2010, export just over $1.5 billion out of total sales for the sector of just under $50 billion.
Well the Rudd Government doesn't believe its business as usual when it comes to artificial impediments to your growth.
As well as having enormous export potential, Australia's funds management industry has several advantages over our competitors. The fact that several global providers have chosen to establish regional asset management operations here shows that these advantages have not gone unrecognised.
These advantages are:
- a stable operating environment.
- a highly skilled and multilingual industry workforce, and
- the fact that we are in the same time zone as Asia. As the IFSA paper Policy Options to Increase Australia's Export of Funds Management Services points out, an estimated 15 per cent of financial market activity occurs when the US and UK markets are closed.
Many people realise this untapped potential exists and I in particular congratulate IFSA's leadership and I welcome public contribution of the ABA and John Stewart of NAB in particular to help ensure that Australia builds on its natural advantages to become a financial services hub.
Allowing your industry to compete on a level playing field is an important part of our plan to ensure that Australia is ready for the downturn in commodity markets. That downturn may take a long time to come, but we must be ready. It may take 20 years but it will come. And even if it never comes, in my view, there is no question that the nation will be better off if its non-commodity sectors are able to compete with the world on such a level playing field.
Withholding tax reform is just part of the picture.
Last August I told you Labor in Government would deal with the inequities and inefficiencies in Division 6C.
Division 6C is a prime example of unnecessary complexity and the administrative burden that goes with our tax system. It is a part of the tax law that at one stage served a vital role in protecting the revenue base but its relevance is now much less apparent in light of other changes in the tax law.
I stated that it was vital that Australia has a simple, transparent and internationally competitive system of taxation, and announced that the first reference a Rudd Labor Government will send to the Board of Taxation will be the operation of Division 6C and ask the Board of Tax to examine the opportunity of a managed investments tax regime in Australia.
Now I'd like to update you on progress.
Today I am happy to announce that we have issued terms of reference to the Board of Taxation to review the income tax arrangements applying to managed investment trusts with the objective of developing options for a specific taxation regime for these trusts.
The current law does not encode a single coherent policy for the taxation of trusts. The original legislation for taxing trusts is contained in the tax law and there has been no systemic approach to adapt the law to align with modern practice and the use of trusts as commercial vehicles. The result is taxation legislation that is piecemeal and often uncertain in its application.
I have asked the board to complete its review by the middle of 2009.
I also announced at last year's IFSA conference that if Labor were to win Government that I would ask Treasury in consultation with industry to consider the best way to streamline and simplify the operation of Division 6C as an interim step while the Board of Taxation undertakes its deliberations.
Today I release a consultation paper on interim changes to division 6C. The Government is seeking public comment on potential changes outlined in this paper. We are seeking your input as we need to get these changes right.
Ideas canvassed in the paper include:
- ways to clarify the scope and meaning of investment in land for the purpose of deriving rent.
- a 25 per cent allowance for non-rental income from an investment in land could be created to clarify the meaning of 'primarily' in the context of investing in land for the purpose, or primarily the purpose, of deriving rent.
- Expanding the range of financial instruments that a trustee could trade or invest in without triggering company taxation.
The Treasury advises me that the fiscal impact of the Division 6C changes flagged in the paper is likely to be minimal.
We all know that these are times of fiscal restraint. As a member of the ERC I can tell you that the government takes this seriously.
Accordingly the Government will consider the proposed changes that arise out of the discussion paper in that light i.e. they will need to be revenue neutral or close to it to meet with Government support.
In conclusion these are important but first steps on our moves to promote Australia as a financial services hub.
We need to be realistic.
We are not going to be New York or London but we can be a centre which builds on the skills and experience which have been built up since Paul Keating took that far sighted decision to introduce compulsory superannuation in Australia.
A centre which provides opportunities for our well educated and keen young people who want to work in a country that is a recognised financial services centre of international importance.
The whole Government, from the Prime Minister down is committed to our financial sector focus.
Its something that is also important to the Trade Minister Simon Crean. A key element of Labor's policy platform in the Trade arena is the provision of enhanced support from Austrade to the financial services sector to expand financial services exports.
Ladies and gentlemen, Australia's financial funds management sector has a critical mass, history and depth that few countries can match.
The measures I have outlined today will remove impediments to growth… reduce the regulatory burden on business… and level the international playing field. And in doing so, they will help your sector to leverage its advantages into wealth for Australia.
As I said in August, it is our job to remove the impediments to your growth - to let you compete on a level playing field. No subsidies, no special treatment, just good sensible forward thinking policy.
Then it's over to you. It's up to you to compete well on the world stage. I am sure you'll do well.