Good evening, and thank you for that kind introduction.
I would especially like to thank the Consul-General, Phil Scanlan, for his invitation to speak to you tonight.
It's a pleasure to be able to take part in one of the Australian American Leadership Conversations.
As a Patron of the Young Australian-American leadership dialogue, encouraging the next generation of Australian leaders to engage in the relationship with the US, I'm a strong supporter of the Leadership dialogue's work.
This conversation gives me an opportunity to talk about the performance of the Australian economy, the strengths of our financial services sector.
We know that the world economy appears to be showing signs of recovery – recovery from the deepest and most highly synchronised downturn in the post-war period.
Without wanting to appear boastful it is possible to now say that Australia has withstood the global financial crisis better than any comparable country.
Strength of the Australian Economy
In terms of context, Australia has the sixteenth largest economy in the G20 and the fifth largest in the Asia-Pacific.
Australia's equity market is the seventh largest in the world and the second largest in Asia.
Over the two years to June 2009, Australia has grown by almost four per cent. In contrast, the US, UK, Japan and the Euro area have all shrunk.
In fact, over the year to June 2009, Australia was the only advanced economy to achieve positive growth.
The OECD in its November Economic Outlook, pointed out that Australia is one of only three OECD economies forecast to grow in 2009, with fiscal and monetary stimulus supporting activity through the worst of the global recession.
Our performance during the crisis means our unemployment rate coming out of the crisis is not expected to peak as high as our peers.
Unemployment in Australia is currently at 5.8 per cent and is expected to peak at 6¾ per cent in mid-2010.
In contrast, according to the IMF, the average unemployment rate of the advanced economies is expected to reach 9.3 per cent by the end of that year.
The IMF forecast the net government debt of major advanced economies to reach 93 per cent of GDP in 2014.
In contrast, Australian Treasury forecasts predict Australia's net debt will reach just 10 per cent of GDP around the same time.
There are a number of reasons for this resilience. Our fiscal response was swift and effective, as was the monetary policy response of the Reserve Bank. Our trade links to Asia, and China in particular are something I'll talk about a little later.
Another reason for the comparative strength of our economy has been the quality of our financial regulatory system, which has benefited from significant reforms undertaken by successive Australian governments over the past 25 years.
Our regulatory framework has been organised along functional, rather than institutional lines. As a result, the number of regulators in Australia is far fewer than in the US.
Australia's financial sector regulatory framework is based on the ‘twin peaks' model in which there are two financial sector regulators with clearly defined regulatory roles.
Having APRA responsible for prudential regulation and ASIC responsible for the integrity of financial markets results, we think, in a particularly strong structure. We don't have so many regulators that things fall through the cracks. By the same token, arguably having a single regulator can result in an over emphasis on prudential regulation as opposed to integrity regulation and vice versa. Having two regulators means that both prudential and corporate regulation, will be the core business of the nation's regulators.
Our prudential regulators have also improved their procedures and practices in response to earlier episodes.
After Australia's largest general insurer, HIH, collapsed in 2001, changes were made to the structure of APRA to better equip the regulator to undertake its functions.
These changes put our regulators in the best position to deal with the financial crisis, and, frankly, in a much better position than many of their international counterparts.
Australia's place in Asia
Australians sometimes talk about the tyranny of distance, but when it comes to links with the rest of Asia, we are well placed.
The Asia-Pacific region accounts for around one-quarter of global production, a larger share than North America.
And with almost two-thirds of Australia's exports going to this region in 2008-09, we will continue to benefit from the continued expansion of our major Asia-Pacific trading partners.
These connections to Asia are more than just economic, they are also a result of our multicultural society, and I know that the benefit of multiculturalism is something New Yorkers can relate to.
One-quarter of our workforce was born overseas, with substantial representation from Asian countries.
Over 15 per cent of Australians speak a language other than English at home.
And around 1.1 million Australians speak an Asian language at home, with half a million speaking a Chinese dialect.
Coming out of the crisis, the Asia-Pacific region has the greatest potential for growth. Australia, as an open, well regulated and stable economy in the region, is uniquely placed to offer exposure to this growth potential.
While the global banking system was at the heart of the financial crisis, Australian banks have remained solid throughout the rigours of the past two years.
Unfortunately, a number of US and European banks have collapsed during this crisis, including 20 US banks last month alone1. I know it is of great on-going concern to many of you here that the number of banks on the Federal Deposit Insurance Corporation's watch list continues to grow, passing 400 in August2.
Australia has not lost a single bank in this time.
Write-downs by Australian banks have been minimal compared with those by their US and European counterparts.
This has largely been due to the minimal direct exposure our banks had to sub-prime mortgages, either in the US or in Australia.
As a result, the four major Australian banks are among the nine top-rated large banking groups in the world, each possessing a AA rating.
Of course, the outstanding feature of our system is the size and sophistication of the pool of managed funds, a direct result of Australia's compulsory pension system, or as we refer to it, our superannuation system.
Australia's $1 trillion pool of contestable private pension savings is the fourth largest in the world and, according to Watson Wyatt, over the 10 years to 2008, Australia was the fastest growing of world's 11 largest pension markets.
Deloitte expects Australia's superannuation assets to top $2 trillion by 2014, with even more exponential growth to follow.
The constant flow of funds from Australia' compulsory pension system, which has been in place since 1992, is an important driver of growth in this savings pool.
These funds have been at the disposal of the Australian economy, which is one of the reasons why Australia has weathered the global financial crisis so well.
In the 2009 Australian financial year, at a time when liquidity was being rapidly withdrawn from markets around the world, Australia remained an attractive place to raise capital.
Australian-listed companies raised $90 billion of capital. Investor support, including from Australian institutional investors, helped to restore the capital base of companies that together employ over 1.6 million Australians.
To put this in context: at the height of the financial and liquidity crisis, new capital made up a greater proportion of the total market capitalisation of listed companies was raised in Australia than its share in any other major economy.
The skills that have been built up in managing this massive pool of funds in Australia have been a vital factor in positioning Australia as a financial services hub in the Asia-Pacific. Our funds management industry is world class, with capability across liquid asset classes such as equities and fixed interest, as well as illiquid assets such as infrastructure and property. Australia also has strong experience in investment consulting, as well as the governance and administration of pension products.
Just as the Australian economy is expected to flourish in the future, so too are Australia's financial markets and our financial services industry.
The comparative strength of the Australian economy over the last two years is, in our view, an opportunity for Australia's financial services sector. For years, the world's investors will be examining which economy, which financial sector, withstood everything the GFC could throw at it. From the Government's point of view, our job is to identify and remove barriers to the growth of Australia's financial exports.
The Government fully recognises these opportunities as well as the challenges.
The Financial Services portfolio itself is one that had been dormant for a long time. The fact that the Prime Minister has re-instituted a Minister for Financial Services and designated that Minister as a Member of the Cabinet, shows how seriously the Government takes our financial services sector and the need to do more to promote Australia as a global financial centre.
Policy measures we have already put in place include the establishment of the Australian Financial Centre Forum, with a mandate to examine policy settings and identify strategies to position Australia as a leading financial services centre in the Asia-Pacific region.
The forum has considered a broad range of policy settings. I'll be releasing the report in coming months and working through its recommendations.
We have already made changes which will enhance Australia's attractiveness as a financial services centre.
We have cut the withholding tax on certain foreign distributions from managed funds.
The rate will go from 30 per cent, one of the highest in the world, to 7.5 per cent, one of the lowest.
This was a decision taken in our first Budget. The fact that we took such a decision in what were financially difficult circumstances, shows how seriously we take the promotion of Australia as a financial services centre.
We announced in this year's Budget that we will amend the income tax law to allow for deemed capital account treatment for the taxation of gains and losses made on disposal of investment assets by managed funds.
We did this because we are acutely aware of the need for certainty in these matters.
We have announced our intention to repeal the foreign investment fund rules and have instigated reform of the controlled foreign company rules in the income tax law.
We have reformed the foreign investment screening framework to make it less onerous for foreign investors.
And we have reformed market supervision arrangements, taking market supervision out of the hands of the market operators, such as the Australian Securities Exchange, and giving it to ASIC.
Moving to whole-of-market supervision by ASIC is a important step in the process towards considering competition between market operators.
While these policy measures have greatly improved the competitiveness of Australia's financial services sector, we realise that there is always much more to do.
Our finance and insurance industry is one of the largest in the country but it has traditionally been domestically focused, with minimal revenue coming from overseas.
For example, in the September quarter of 2009, finance and insurance services exports made up just 3 per cent of total services exports and less than one per cent of total exports.
Future demographic changes across the world will present opportunities for Australia to increase our financial services exports, including to the United States.
The Government expects that further work being done by Australia's current tax review and the Australian Financial Centre Forum will also help us to fine-tune our policy settings so that we can achieve our goals of establishing Australia as a financial services centre.
The Australian Government is committed to ensure that our financial sector is well-placed to make the most of the opportunities that will undoubtedly emerge once the recovery truly takes hold.
For those interested in exploring those opportunities, the Government, and our financial services providers are ready to engage.