SUBJECTS: Australia as a financial services hub, withholding tax, Johnson Report, carbon trading, short selling
CHRIS BOWEN:
Well, there's been a number of steps undertaken by the Government. We've started by reducing withholding tax for distributions to offshore investors from managed funds from the highest rate in the world to effectively the lowest, from 30 percent down to seven-and-a-half. That was a decision in our first Budget implemented progressively over the three-year period.
We've announced the abolition of the Foreign Investment Fund, reformed the Controlled Foreign Company regime. We've taken some interim steps to reforming the tax treatment of managed investment trusts while we await the release of the Board of Tax report into a new specifically designed, fit-for-purpose regime for managed investment trusts. So they're a number of the steps we've undertaken and I'll soon be receiving the Johnson Report by Mark Johnson, the former Deputy Chair of Macquarie Bank, which will outline proposals for the next steps that we need to be taking.
EMILY MITTERHUEMER:
And how is the Government supporting our financial services companies in their quest to tap into new opportunities in the Asian region?
BOWEN:
Well, Austrade is very proactive in doing that, encouraging and assisting those industries, those companies, in pursuing those opportunities. But I see Government's role, in terms of my portfolio as Financial Services Minister, as being identifying the Government-imposed competitive barriers, the barriers which stop or impede our financial services industries from competing on a level playing field and removing them.
So take withholding tax, for example. Where we were competing with other nations with withholding tax of 10, 12 or 15 percent, our rate was 30 percent. This was an unfair impost on our managed funds. So we've removed that, we've gone from 30 percent to seven-and-a-half. So, far from being an impediment to their competitive advantage, we're actually trying to assist their competitive advantage in competing for those very important managed funds around the world.
MITTERHUEMER:
Now the report that you're helping to launch this evening does seem very rosy. What are some of the key areas of concern that you have for our financial system?
BOWEN:
Well look, I think there is a lot more to do. We need to build on the great capacity that we have, which is outlined in the report. We need to make sure that our tax system more generally – I've referred to some specific reforms – but we need to make sure our tax system more generally is conducive to Australia being a financial services hub. This is a focus for the Johnson report; it's also one of the objectives in the Terms of Reference for the Henry Review into Taxation, so I think that's a key area.
We need to be making every post a winner. We need to be ensuring that we're taking every opportunity. Take carbon trading, for example. One of the reasons I think we should have a carbon trading scheme, a carbon pollution reduction scheme, up and running as soon as possible is the great opportunity it is for Australia in the financial services field, in the trading of permits and derivatives in relation to carbon trading. That's just another example of how we should be making every post a winner.
MITTERHUEMER:
Now the report does outline that around a quarter of our workforce comes from overseas. Do you think it's sending a conflicting message that the Government's trying to create a financial services hub but at the same time cutting skilled migration?
BOWEN:
Well, we've only made quite modest cuts to skilled migration, to migration generally. That's reflective of the economic times. We are well known for being open to skilled migration and that hasn't changed at all.
MITTERHUEMER:
Now a lot of the cost comparisons in the reports are based on an exchange rate of around 80 cents. A lot of analysts are now starting to talk about parity and beyond. How does this affect the attractiveness of Australia for foreign investors?
BOWEN:
Well look, I think the Australian economy needs to be robust enough in our attractiveness to foreign investors to withstand any particular cycle in the Australian dollar. I mean, it's been a rollercoaster for several years now. We've gone up and down very substantially, and that is part and parcel of having a globalised economy in a floating exchange rate, and that's not about to change any time soon. So what we need to do is make ourselves attractive enough, so that we can withstand increases and reductions in the Australian dollar.
MITTERHUEMER:
Now the new rules on short selling have been unveiled, with those set to come into effect April next year. By the time they come into effect, it will have almost been 18 months since we started talking about this. Are you happy with the timeframe?
BOWEN:
For the new regulations? Yes I am. I think it's important that ASIC be given time to develop the infrastructure to go with it and also it's appropriate that the industry be given some time to prepare for the new regime. We have taken our consultation on this very seriously. There's always a balance to be struck: you can do things more quickly, but that means sometimes rushing the consultation. This has been a very delicate balancing act for the Government, something I spent a lot of time on, in consultation with ASIC, with the industry, with the various industry associations. That's taken a little bit of time, I acknowledge that, and it's also appropriate that we take some time to make sure that when we implement it, it happens smoothly and seamlessly.
MITTERHUEMER:
Now there is a significant time delay from when short positions are taken to when they need to be reported, between two and four days. Do you think that there's a problem with the time delay, considering that a lot of positions are often opened and closed on the same day?
BOWEN:
Well of course, the current regime is that some of the positions will be reported the next day. That will continue, that current system will continue. In relation to the broader changes, we've taken the decision that the balance is for the public reporting to be T+4.
Again, this is a matter of balance and there are many in the industry who say, 'well, we would like a week or two weeks'. I don't think that would have struck the right balance. Similarly, I think T+1, in terms of the new regime, wouldn't have struck the right balance. I've worked as assiduously as I can to get that balance right. I think that's largely been reflected in the responses of industry associations over recent days.