WEBSTER:
There was a very interesting piece in the paper, in the Herald, that we saw. When an ambitious young person wants to get ahead, in the financial world, there is a good chance that they’ll pack up and go to London or New York, which makes sense. They are hubs for finance, that’s for sure, and build up their skills in a large financial centre there. But what happens if they decide that they want to live here, in Australia.
Well according to Chris Bowen, the Minister for Competition Policy and Consumer Affairs, they can also find it hard to adjust when they come back, with a country that fails to promote itself as a finance centre. While Sydney will never be on par, its true, with London or New York – they’ll always be the world’s big financial centres.
Mr Bowen says we should be developing a financial services hub here and he’s written this opinion piece in the Herald today, which is worth a read. He joins me on the line. G’day, thanks for joining us.
BOWEN:
G’day Tim, thanks for having me.
WEBSTER:
Look, what you are basically saying is we lose all of this talent, one thing, but we are losing a fair amount of money too, that we could have?
BOWEN:
Absolutely. We are very well placed if we want to capitalise on our advantages. We are close to Asia – Asia is growing and growing richer – they have more and more to invest. We have a well-respected prudential regulation system and a stable democracy, but people aren’t investing their money, they aren’t giving it to Australians to manage for them. We run our own money very well, we have a well developed superannuation system. We have the fourth largest pool of funds under management in the world, which is much bigger than you’d expect given the size of our economy, because of superannuation. This means as a country, we have built up skills managing money, but other people aren’t giving us their money to manage. So we could be a financial services hub for Asia. We could be the equivalent of Hong Kong or Singapore.
It requires a bit of vision, of long term planning, and some changes to be made. But there’s no reason why we can’t be punching above our weight and really doing better as a nation instead of letting these opportunities slide by.
WEBSTER:
Look I’ve said for a long time and I know you think this is true, that one of the best things any Australian Prime Minister or Treasurer has ever done for us was compulsory superannuation, and that was Paul Keating. So what you are saying is keep that superannuation and get some more super in here and have it managed here…
BOWEN:
Let’s have it managed here and that will help with exports, because it counts as an export and puts downward pressure on the current account deficit, which is a big problem. It creates well paid, interesting jobs, here for Australians. That’s what this is all about – giving young people who want a well paid, interesting job a chance. As I said in the article this morning, if they want to work in a major financial centre, they feel obliged to get on a plane and hop off to New York or London or Hong Kong. There shouldn’t be any need for them to do that. If they want to do that, to build their skills, that’s fine, but we’d like them to come back at some time so we can build on those skills as a nation. They shouldn’t feel obliged to go overseas if they want to work in a major financial centre.
WEBSTER:
What you saying, and explain it in pretty simple terms for the listeners, is that what you are doing with withholding tax, because that was way too high wasn’t it?
BOWEN:
We had the highest withholding tax rate in the world. Withholding tax, very simply, is the tax the government takes out for distributions to people from elsewhere. Now what was happening, was that big pension funds, big superannuation funds from overseas, where thinking ‘where can we invest our money’, they’d look at Australia and we’d get kicks, ‘oh well, they’ve got a well developed superannuation scheme themselves – tick, they’ve got a stable democracy – tick, they’ve got a solid prudential regulation system and the banks don’t go broke – tick, they’re in the Asian time zone – tick’. ‘Hang on, they’ve got on of the highest withholding tax rates in the world…
WEBSTER:
Let’s not give of our money there, yeah…
BOWEN:
We can’t go there because we aren’t going to make enough money. So what we announced in the Budget, is that we will go from the highest withholding tax rate to very close to one of the lowest rates in a period of three years. We’ll go from 30 percent to 7.5 percent.
Everybody in funds management and the financial services industry in Australia tell me, that there will be a competitive, level playing field, and that they’ll be able to go out and compete. We will have more funds flowing into Australia, more jobs created and more financial services exports.
WEBSTER:
Just finally, we are talking big bickies here, we are talking billions of dollars aren’t we?
BOWEN:
We are. These are multi-billion dollar funds. You’ve got American pension funds, European pension funds. You have billions of dollars under their control. Now we aren’t going to get all of that, but if we get a slice of it, the term I use in the article is there is a ‘river of funds flowing through Asia’ and we have a thimble in the river at the moment. Now if we change that thimble to a cup…
WEBSTER:
Or a bucket?
BOWEN:
Or a bucket…and we’ll be much better off as a country. It’s about long term planning; we can’t just ride the commodity or mining boom. It’s not good enough to live off the miners or sheep’s back. One day, when it all comes to an end, we need to be able to say when things were going well we prepared for the bad times and that’s what we haven’t been doing as a nation, for far too long.
WEBSTER:
Good on you, thanks for that. Chris Bowen, he is also the Assistant Treasurer of course. It’s worth a read that, in it’s the opinion pages of the Herald, so if you are interested in the financial markets….