SUBJECTS: Johnson Report, Henry Review , ATO, private equity, APRA, Islamic finance.
ALEX SYMONDS:
Meanwhile, on the back of that Alex Symonds has been speaking with Financial Services Minister Chris Bowen on the [Johnson] Report.
CHRIS BOWEN:
Well, this is a very important report. Promoting Australia as a financial services hub has been one of the key priorities for our Government since coming to office. We've taken a number of policy initiatives so far but we wanted to get expert advice on the next steps and that's what this Report provides us with.
I think all the recommendations are worthy. All the recommendations will receive very serious consideration. Some we are effectively already implementing; others of course are longer term, and some need to be considered in the budgetary context and also in the context of the independent tax review being led by Ken Henry. So I can't go through today and put ticks and crosses next to each of the 19 recommendations but they're all worthy of very serious consideration.
SYMONDS:
And can you talk about the interplay between this Report and the Henry Review?
BOWEN:
Well, we'll work that through. We'll be releasing the independent tax review in the early part of this year. This Report is being released now and we'll be working them through together in terms of the response. That will be a matter that we consider as we go through both reports.
SYMONDS:
One of the things the Report points out is that Australia hasn't become the big importer or exporter of financial services. Why do you think this is the case and is it something that successive Governments have failed to do?
BOWEN:
I think Australia has long had the slogan of being a financial services centre but there hasn't been the policy backup. There haven't been policy reforms to promote Australia as a financial services centre.
To give you one example, Australia has the fourth largest pool of funds under management in the world but we only export around four per cent of that. So only four per cent of the funds we have under management comes from offshore. It's much higher in many other Asian nations.
So we haven't capitalised on the skills we've built up as a very significant manager of funds. We haven't sought to manage other people's money. Partly that's been because of the tax system – our very high withholding tax rates, for example, which we have moved to reduce, and other measures which are covered in this Report. So I just don't think there's been a focus from Government in identifying and removing the barriers to the export of Australia's financial services.
SYMONDS:
One of the things the Report also talks about is the need for adequate consultation in changing financial services regulation. How much do you think the uncertainty over the employee share scheme policy, as well as the battle between the ATO and private equity over profits, how much do you think that has set back Australia in its ambition of trying to be a financial services centre?
BOWEN:
Well, in terms of regulators, the regulators are at arm's length from Government and they are obliged to implement the law as they see fit. But wherever possible, they do consult – for example, APRA is engaged in a very significant consultation with the financial services sector about potential requirements and possible changes. And there is, if you like, a robust public debate as well as consultation going on about that.
So where appropriate, regulators will consult. It's often difficult for the Tax Office to do that, but I think people understand around the world that tax authorities, whether it be the Australian Tax Office, the Inland Revenue or whoever it may be have an obligation to implement the law as they read the law and it's the role of Governments to change the law if it's felt necessary.
SYMONDS:
Another area identified by the Report is that of Islamic finance. I know you've talked about this before. What kind of opportunities do you think there are for Australia in taking advantage of Islamic finance, and do you think that there are some issues in terms of potentially creating up, say, two tax regimes to deal with regular financing and Islamic financing?
BOWEN:
I think it is an area of great opportunity. Islamic finance has grown around the world, it's an area which has been less adversely affected by the global financial crisis than other areas because of the nature of their investments. I don't think there's a danger of two systems because what this Report recommends is ensuring that we have a level playing field, that Islamic finance is not disadvantaged by our tax or regulatory system. They're not suggesting any special concessions or any special regime for Islamic finance, rather just to ensure that our tax and regulatory systems are alive to the differences between, if you like, traditional Western finance and Islamic finance. And I think that's a very worthy recommendation.
SYMONDS:
Obviously these reforms won't come without cost. There's a lot of cutting of taxes that's been recommended. Do you have some early indications of what this might cost, what the budgetary implications might be?
BOWEN:
We haven't had these proposals costed yet. That will be part of our consideration of them and that will obviously be a key factor in the Government's consideration of the recommendations. Some of the recommendations are cost-free, others would have some substantial costs. In the current fiscal environment, the Government is obviously cautious about things which have a substantial cost, but we'll be working that through and we'll be considering it in that budgetary context.
SYMONDS:
And the Report also talks about the need for adequately trained workers to support the local financial services system. Do you think our universities are producing the right kind of graduates to meet the Government's objective?
BOWEN:
This is one of the encouraging things about the Report. It finds that Australia's skills base, the quality of our human capital, is very strong. That's certainly the feedback to me from industry as well. It's one of our great selling points. There are a number of factors which go into creating a leading financial centre and that is a very important one.
So yes, I am very pleased and confident in the quality of Australia's graduates. I think they're well respected around the world. You know, if you go to New York or London, it's almost impossible to have a meeting with a major financial services house without bumping into an Australian. There's Australians everywhere in New York and London, which is a great thing. But we want some of them in Sydney and Melbourne promoting Australia as a financial services hub as well.