SUBJECTS: Tax, commissions, Ripoll Inquiry, ASIC, One.Tel, AWB
ALI MOORE:
Chris Bowen, welcome to Lateline Business.
BOWEN:
Good evening Ali, good to be with you.
MOORE:
Minister, you've been in New York, you're now in London, and you're selling Australia as a financial services centre. This is far from a new ambition; it's a point you've made actually, it's been a slogan for a long time. What exactly are you trying to achieve?
BOWEN:
Well there are a couple of things Ali. It has been a slogan for a long time but this Government has actually backed up that slogan with a number of positive actions: reducing withholding tax rates; changing our tax regime etcetera and commissioning The Australian Financial Centre Forum to prepare the next steps. In New York and London, I've been doing a few things – pointing out the strength of the Australian economy – and I've found a very receptive audience to that.
MOORE:
Well you talk about tax regimes, I wonder about the feedback on the particular issue of the Australian Tax Office chasing the private equity group TPG over its profits, over the Myer float. How is that affecting Australia's reputation as a destination for investment?
BOWEN:
Well it needs to be taken in context Ali and I'll say to you the same things I've said to people who've raised it with me and it's been raised not as a first order issue – there's been many issues raised with me…
MOORE:
But it has been raised as a concern?
BOWEN:
Well there have been questions about it and questions about what's going on and that's perfectly understandable. I make these points: the Government recognises the need for certainty in tax treatment. That's why on Budget night we announced that we would legislate to ensure that income in managed funds is regarded as capital, not revenue where there's an irrevocable declaration made to that effect and the details of that are being worked through by my successor, Nick Sherry.
MOORE:
But how does that affect this particular case of TPG?
BOWEN:
Well the point I'm making is that the Tax Office has indicated previously to the Government and to industry that they would regard income as being revenue not capital. That was a considerable change in the view of industry and would create considerable uncertainty and the Government took the view that that wasn't appropriate. Now as relates to this particular case, as you know Ali, the Australian Tax Office is arms length and independent. It would be inappropriate for any Government Minister to seek to undermine the activities of the Australian Tax Office. I make that point very clearly.
MOORE:
But Minister, isn't the issue one of transparency because the concern of many is that people don't understand what the tax office is doing and why they think they have a right to this money?
BOWEN:
Well that's why I make the point that on Budget night, the Government made a very clear announcement that we would regard managed fund income, where appropriate, and where a declaration is made by the fund, as capital. That was a recommendation I took to the Cabinet because we were very concerned about any uncertainty in that regard. Now there are still some details to be worked through there and the people I've spoken to understand that. They understand that the Government recognises the need for certainty and they understand that. People understand, from time to time, revenue authorities, whether it be the Australian Tax Office, or the Internal Revenue or Her Majesty's Revenue or whoever it is around the world undertakes activities such as this.
MOORE:
So then can I just clarify, are you saying that what the tax office has done is consistent with the changes you announced in the Budget or inconsistent? Because we don't know really why they're doing what they're doing.
BOWEN:
No, what I'm saying Ali is that the Government made that decision on Budget night and made that announcement on Budget night which will provide very considerable certainty to this sector. Now there are some details in terms of the legislation which the Government will release in due course, which I think industry will at that point find provides that further certainty. What people say is, "we don't care so much where the goalposts are as long as we know where they are" and that's a legitimate point of view. That's why the Government took that action.
MOORE:
Let's move on. While you've been travelling, the Financial Services Parliamentary Committee has made its recommendations into the sector including calling for legislative change to impose a fiduciary duty on financial planners to put the interests of their clients ahead of the interests of their own. If you have that fiduciary duty, do you also need a ban on commission payments?
BOWEN:
Well Ali let me say this; this has been a very important contribution. Bernie Ripoll and his committee have done a very thorough job and I welcome their contribution. As I said before the report was released, most recently when I opened the Financial Planners Association Conference, we'll work through those recommendations and we'll do so in conjunction with the Cooper Review. The Government's got two reviews. There's the parliamentary review into financial services advice more generally and the Cooper Review into superannuation, including superannuation advice, and so these two reviews need to be taken together.
As I said there are two principles which will be underlining our response. They are, first, that financial advice should be in the best interests of the consumer and that any distortions to that best interest through remuneration should be minimised and that, secondly we shouldn't be putting financial advice out of the reach of ordinary Australians….
MOORE:
Minister to quote yourself back to you, "I do think that commissions not only provide a potential conflict of interest but also a perception of conflict of interest" and the second part of that paragraph was, I've also said we've left the option of legislation open to enshrine those changes"…
BOWEN:
Absolutely…
MOORE:
So you do agree with the Ripoll Inquiry that payments from financial product providers to financial planners should cease?
BOWEN:
I have said consistently Ali that commissions are problematic, highly problematic…
MOORE:
So should commissions be banned, does it follow?
BOWEN:
Well I reiterate those comments that you just quoted. We reserve the right to legislate but what I'm not going to do is pre-empt the Government's response to either of these two inquiries.
MOORE:
The Ripoll Inquiry also recommends more resources for ASIC and better monitoring by them.
ASIC has come in for some significant criticism over the past couple of weeks. First of all, there was the comprehensive loss in the One.Tel - Jodee Rich court case. More recently, in the last few days, ASIC's been criticised in its case against the former CEO of AWB Andrew Lindberg. The judge in that case accuses the regulator of overreaching, of using silly examples. In other words, it's a broadside at their methodology. What's your reaction to that?
BOWEN:
Well can I say very clearly, ASIC has my full confidence and the full confidence of the Government. ASIC will not win every case it undertakes. You don't want a regulator only undertaking cases that are a slam dunk. You want them undertaking cases that are difficult. They've had some losses, they've had some wins. They had a significant win on the James Hardie case. I think the Global Financial Crisis has shown that both APRA and ASIC are world's best practice regulators.
MOORE:
I understand they can't win every case but the regulator being accused of overreaching, of using silly examples isn't the sort of criticism you expect to hear from a judge in a case involving the corporate regulator.
BOWEN:
Well of course as I say, I prefer ASIC to win every case and I'd prefer every judge to agree with everything ASIC does but in the real world, that's not going to happen. ASIC, as I say, has had some considerable wins. The Jodee Rich case started a long time ago – ASIC's been restructured since then – there's a new structure in place which has been universally welcomed throughout industry and legal sectors. It's a recognition that's resulted in an improvement in ASIC's performance.
MOORE:
Certainly, The Jodee Rich case was initiated many years ago and indeed there has been a restructure since. That's not the case with the current case against the AWB former CEO. That's an ongoing case but it has only recently begun in court. The question remains, does ASIC have the smarts to do what it's being asked to do?
BOWEN:
Well I think that case Ali started in 2007. There's been a significant restructure of ASIC…
MOORE:
But it's being argued for now so if there was a restructure and they weren't doing it appropriately, they would have changed the way they're doing it in court now.
BOWEN:
Ali, I know that ASIC would take that criticism on board and will assess whether there's anything that they could have done better and that's what I expect of them and that's what I know that they will do. They have our full confidence and that's very important.
MOORE:
Minister many thanks for talking to Lateline Business.
BOWEN:
Very good to talk to you, Ali.