Thank you for the invitation to be with you today.
Thank you to Ernst & Young and thank you to the Committee for Sydney and Stephen Loosley for organising this event.
We meet at a time of unprecedented turmoil in financial markets.
I won't bore you by recounting the events of recent weeks. Suffice to say; that we all recognise the seriousness of the events; and the only certainty in this crisis is its fluidity.
We do not know when it will end or if it will get worse, although some of the signs of these last few days have been encouraging.
Today, I want to make the point that Australia is not only well placed to withstand the current turbulence, but that it is incumbent on us to examine these financial storm clouds for a silver lining in the longer run.
We are well placed for several reasons:
- Our banks have been relatively conservative and our prudential regulation is sound.
- Of the 12 of world's top 100 banks that are AA rated or above, 4 are Australian.
- APRA and the RBA have handled the events of the last year as well as, if not better than, any of their overseas counterparts.
- And the substantial budget surplus and the strength of our terms of trade also give us a substantial flexibility with which to withstand the crisis.
Every challenge is an opportunity.
Some, I suspect, of the world's investors will be more conservative than they have been in the past. They will be looking for safe havens – for stable and well-regulated markets in which to invest.
The key test for world financial centres will not be how they fared in good times; it will be how they performed in the turbulent times.
I believe Australia is well placed to pass that test and that our efforts to promote Australia as a leading financial services centre will only be enhanced.
As I've said many times, we have enormous competitive advantages when it comes to promoting Australia as a financial services centre.
As Tim Harcourt from AUSTRADE has put it, our tyranny of distance has been replaced with the power of proximity.
Our presence in the Asian time-zone and overlap with the North American time-zones is often understated but is quite important.
The skills the financial sector has built up since the introduction of compulsory superannuation are substantial.
We have the largest pool of funds under management in Asia and the fourth largest in the world. You don't manage that much money without getting pretty good at it.
Our accounting profession is internationally respected and as I have said our banks are well capitalised and prudential regulation is world best practice.
But when it comes to exporting this service, we are lacking. Just 2.5 per cent of the money managed by Australians comes from overseas.
There is a swelling river of funds to our north. Funds under management in Asia are growing annually by 14 per cent.
But as a country, we put but a thimble in this river.
If we could put a bucket or even a cup in this river, it would be a significant boon to our financial exports.
Promoting Australia as a financial services centre
Promoting Australia as a financial services centre is important for fairly obvious economic reasons. Promoting financial exports will help our terms of trade and create wealth in Australia.
But economics is a means to an end.
At the moment many of the young people who long to work in a major financial centre feel obliged to depart Australian shores and wing-it to New York, London, Hong Kong or Singapore.
But if we are successful in our endeavours, such creative and intelligent people will have the option of staying in or returning more quickly than they otherwise might have, to the likes of Sydney or Melbourne or Brisbane.
Such young people are members of what Richard Florida has called 'the creative class', which he has described as:
"a fast-growing, highly educated, and well-paid segment of the workforce on whose efforts corporate profits and economic growth increasingly depend. Members of the creative class do a wide variety of work in a wide variety of industries---from technology to entertainment, journalism to finance, high-end manufacturing to the arts."
Florida goes on to say,
"They do not consciously think of themselves as a class. Yet they share a common ethos that values creativity, individuality, difference, and merit."
Our cities, such as Sydney, offer plenty of attractions both to the creative class and to financial institutions looking for a base.
Sydney and Melbourne are both substantial domestic financial centres in their own right: 2 of the Big Banks are based in Sydney, and 2 are based in Melbourne.
Both the New South Wales and Victorian Governments have shown fine leadership in promoting their cities as good locations for financial institutions to base themselves in.
I welcome the involvement of the New South Wales Government in the financial services summit held here in Sydney. I especially commend the New South Wales Minister for State Development, Ian Macdonald, for his involvement.
And I welcome the efforts of the Victorian Minister for Industry and Trade, Theo Theophanous.
When we are successful there will be scope for Australia's cities to be involved in the development of Australia's financial services sector.
And to quote Paul Keating, 'there's plenty of sport in this for all of us.'
The potential benefits would spread across the major cities – as they become increasingly important international commercial centres.
I welcome the moves in these cities to prepare a physical space for financial service centres – particularly the great facilities at the Docklands in Melbourne and Barangaroo as a future site here in Sydney.
And we, as the Federal government, have begun our efforts to improve Australia's attractiveness as a financial services centre in the Asia-Pacific region.
Withholding tax
One of the main reasons we haven't been able to turn Australia into an 'Asian fund/s house' is our tax regime.
With the highest withholding tax rate in the world, our previous tax regime has actively discouraged foreigners from putting their money in Aussie hands.
Reforms the Rudd Government passed in the middle of the year will within three years, slash our withholding tax rate from 30 per cent to 7.5 per cent.
Australia will go from having the highest withholding tax rate in the world to effectively the lowest.
Division 6C
A vital step in the journey towards making Australia a financial services hub for the Asia-Pacific region is to modernise the tax arrangements applying to managed funds.
So the government has referred the income tax arrangements applying to managed funds to the Board of Taxation for review. The Board has been charged with decreasing complexity, increasing certainty and minimising compliance costs – and is expected to report in the middle of next year.
In the interim though, the government has moved to eliminate some of the more obvious and annoying anomalies in Division 6C.
I introduced these reforms into Parliament yesterday. They are reforms that will streamline and modernise the eligible investment rules in Division 6C.
They are reforms that will make it easier for managed funds to know if they are actually complying with the law; and they will reduce the scope for a trust to inadvertently breach Division 6C.
Financial services summit
To look at how the financial services sector could capitalise on its strengths, harness opportunities and reach its full potential; the Australian Government cohosted with the NSW Government a financial services summit in this city of Sydney.
The Summit provided an opportunity to air issues. To identify areas in which the Government can do more to make Australia competitive.
It raised some very important issues, not just on tax, regulation and skills, but on the need to promote and brand Australia.
The Australia as a Financial Centre Forum
Today I announce our next steps.
One idea that came out of the Summit was an Olympic bid-style team; to work intimately with Treasury, Government and the Financial Sector Advisory Council.
I am pleased to announce the creation of 'THE AUSTRALIAN FINANCIAL CENTRE FORUM' to be chaired by Mr Mark Johnson.
Mark is held in high regard in the financial service sector and has the strongest of credentials. He has been a longtime member and Chair of the APEC Business Advisory Council, Chair of the Finance Working Group, Chairman of AGL Energy and Macquarie Infrastructure Group. We are very pleased that Mark has agreed to become involved.
As Chairman, Mark Johnson will be joined by a Panel of Experts to develop a coherent framework to advance Australia's interests in the region and position Australia as a financial services centre:
- Mr Paul Binsted: the former Managing Director of the Global Investment Bank Lazard; Chairman of the Board of the Sydney Ports Corporation; and a Member of the Government's Financial Sector Advisory Council. Paul brings with him significant experience in corporate financial advice and M&A.
- Mrs Patricia Cross: a non-executive director at NAB, a Director of Wesfarmers and Qantas Airways, and has over 25 years of experience in international banking and finance.
- Mr Craig Dunn: Managing Director and Chief Executive Officer of AMP Limited; an Advisory Board Member with the Government's Financial Literacy Foundation; and a member of the Government's Financial Services Advisory Committee.
- Mr Jeremy Duffield: founder and Managing Director of Vanguard Investments Australia Ltd; Director of Plum Financial Services Limited Boards; Deputy Chairman of the Board of the Investment and Financial Services Association and Member of the Financial Services Advisory Council.
- Mr John D Story: Director and chairman of Suncorp Metway; Director of CSR Limited and TABCORP Holdings; and the Chairman of the Board of Directors of the Australian Institute of Company Directors.
I would like to express the government's thanks to these leading figures for committing their time to joining us in undertaking this initiative.
Along with these senior representatives, I am establishing a Reference Group of industry representatives to assist the Panel of Experts.
The Forum will include representatives from: IFSA, AFSA, FINSIA, the AFC, the ABA, the ICA, the ICAA, the CPA, the NIA, APLMA, AFMA, ABACUS, and the FSU; other relevant organisations and any interested states.
The Forum will work be open to interested relevant state and territory departments, and will work closely with Federal agencies such as Austrade.
The Chair, Panel and Reference Group will be supported by a Treasury secretariat. Which, due to it's proximity to the public and private sector, will have a permanent presence in both Canberra and Sydney.
Conclusion
What I am announcing today will allow us to get the policy settings right to position Australia as a leading financial services centre; and I look forward to working with the 'Australia as a Financial Centre Forum', and all interested parties on this important initiative.
Thank you.