Key points |
Wellbeing Framework: guides thinking on policy including the Budget; ensures broad assessment of likely costs and benefits is made across full spectrum of Treasury portfolio’s public policy areas. |
Budget outcomes on superannuation: will enhance Australians’ wellbeing, freedom of choice about working and planning for retirement, and consumption possibilities. |
Business investment: Budget initiatives will deliver benefits to investment community. |
Infrastructure investment: strong demand for investment in infrastructure projects from private sector. |
Reducing the regulatory burden: work in this area will help to enhance wellbeing. |
MELBOURNE
26 May 2006
Good morning. It is a great pleasure to be with you here today. First, I would like to warmly thank the Securities and Derivatives Industry Association for their very kind invitation to speak again at the Association’s annual Conference.
Today I thought you might like me to share with you some of the insights about the Australian economy that I’ve gained in my position.
I think it is very timely to do this, especially considering the fact that the Federal Budget was handed down just two weeks ago.
On previous occasions I’ve said that it’s important to consider and assess the government’s Budgets in a given context — not in isolation.
And this morning that’s exactly what I am going to do. You all know the details of the Budget, the nuts and bolts.
But what I’d like us to do here today is think about some of the Budget outcomes particularly in the context of how they will improve the wellbeing of the Australian people.
As I said a minute ago, these insights will come from my perspective as Parliamentary Secretary to the Treasurer. So, obviously, the view I give you will be based on my responsibilities in that capacity – that being my day-to-day focus.
Having done that, then I would like to take the opportunity to outline what I believe is the way forward.
It would be incomplete to talk about those things without raising the issue of the regulatory framework that exists.
After all, it’s the framework within which we all must operate.
So I am going to speak a little about that too – in particular about the strategies the government is implementing to get our regulatory systems running at optimal efficiency.
As all of you would recognise, regulation is extremely relevant to the economic blueprint set down in the Budget. Because by tuning the regulatory system to get our economy operating at peak efficiency we will ensure that we produce the optimal environment for business to grow and prosper.
And as we get it right, it will further encourage business to thrive and, in turn, contribute even more to Australia’s already impressive economic record.
Wellbeing Framework and Budget superannuation reforms
First, I am going to give you a quick overview of the methodology that Treasury and its Ministers use when making policy decisions.
When Treasury officers provide analysis and advice to its Ministers, they frame it in terms of what’s called the “Wellbeing Framework”.
Of course, “wellbeing” means different things to different people. In fact, there are five dimensions to the Treasury wellbeing framework, any one of which presents its own conceptual challenges.
These five dimensions are opportunity and freedom… consumption… distribution… risk… and perhaps most relevant to my address today, complexity.
And any one of the five elements of the wellbeing framework draws on a range of key indicators to provide a coherent framework for analysis and advice across the full spectrum of Treasury’s public policy responsibilities.
Importantly, the Wellbeing Framework goes beyond the conventional economic indicators of income, consumption and productivity. It recognises not only the dynamism, but also the complexity, of the modern economy.
I think a good example of that is the Australian Government’s new superannuation initiative announced in the Budget and detailed in the document, Simpler Super: A Plan to Simplify and Streamline Superannuation.
All of you would know that at the core of the plan is the proposal to exempt Australians aged 60 or over from any tax on their end benefits, where these are paid from a taxed superannuation fund. This would apply from 1July2007.
There would be no tax on a lump sum. There would be no tax on a superannuation pension. And people will be able to make tax-deductible superannuation contributions until they are 75 years of age.
But why is this important? And what does it mean in the context of the Wellbeing Framework?
For a start, the plan would sweep away the current raft of complex tax arrangements and restrictions that apply to superannuants’ benefits.
In doing so, the plan will provide greater flexibility for people like you and me, as to how and when we can draw down our superannuation.
And for SDIA members, it represents a significant opportunity.
Australians will have more money to contribute to their super funds, and they will be able to do so in an accessible, simpler and rewarding way.
In turn, this plan will improve our retirement incomes and also increase our incentive to work and save.
Another way of saying it – using the concept of the wellbeing framework – is that these measures will increase the freedom and opportunity of all Australians when it comes to the choices they make about working and, just as importantly, about planning for their retirement.
And it will increase the stock of their consumption possibilities… the number of funds they can invest in, the number competing with each other to outperform the market. Even the securities and derivatives products the funds look to invest in may become more innovative and challenging.
I should mention at this point something you probably know and are aware of, but I must mention any way.
Straight after the Budget announcement of the Simpler Super plan, a three-month consultation period began on the reforms that were outlined. The consultation period closes on 9August2006 and the Simpler Super document is available on the Treasury website.
I would encourage SDIA members to have their say. I know that the SDIA has taken up this opportunity in other arenas, some of which I’ll touch on shortly – and I think the shaping of our policy decisions has been all the better as a result of your input.
But there are other issues relevant to your industry that I would now like to turn to…
Proposed ASX and SFE merger
The Australian Stock Exchange, (the ASX), makes hundreds of announcements in any one year. And they can stretch across a range of fields – corporate governance, stock prices, resignations of prominent company directors.
I don’t think there’s a nightly news report on television that doesn’t mention the ASX and the announcements it has made that day. And that is reflective of the number of investors that Australia now has per head of population.
But one of the most significant announcements made this year, by the ASX itself, was its proposal to merge with another significant Australian exchange – the Sydney Futures Exchange.
Just two days ago, the competition regulator announced that it would not oppose the merger.
Reasons for its decision will be contained in the Public Competition Assessment on the ACCC website.
And while I don’t wish to comment on the particular reasons for the ACCC’s decision, I thought it worth emphasising a point made in its media release on product innovation. And that is “ ..product innovation is driven primarily by market participants devising products to meet client needs….”
I think this point encapsulates much of the work that the SDIA has been focused on – innovation in response to market dynamics.
Recent developments in the stockbroking industry
Clearly, the stockbroking industry is continuing to evolve.
Through technological improvements, national boundaries are becoming less of a constraint to trade, and investment capital is being distributed globally in a virtual environment.
Indeed, the proposed consolidation of Australia’s exchanges is very much in step with the trend we’ve been seeing in other parts of the world.
For example, I noticed it’s just been announced that Deustch-Bourse has trumped the New York Stock Exchange’s takeover bid of Euronext.
And the NASDAQ continues to make overtures for the London Stock Exchange.
I believe we are likely to see more of these moves to consolidate as exchanges look towards greater geographical reach to increase their product range.
And just as you have already adapted to the myriad of changes ushered in by technological innovation and globalisation – it is likely that you will be asked, increasingly, to adapt to this changing international environment also.
I am certain that your industry will continue to meet these challenges with the same commitment and vigour that you’ve demonstrated over the last 10 years.
Anti-money laundering
- I know another area of change on the horizon, especially for this audience, is the Government’s review of anti-money laundering laws.
- Money laundering represents a significant threat to the integrity of our financial markets.
- An estimated $3 billion dollars a year is laundered through our financial system, mostly through fraud. And this is something that hurts us all – it works against our wellbeing.
- It is an unfortunate consequence of the increasing misuse by criminals and terrorists of financial services that we need to tighten regulation in Australia in line with developments in other countries.
- That is why we need to strengthen our laws to bring them up to the international standards set by the international Financial Action Task Force on Money Laundering.
Following on from the four-month consultation period which ended in April, my Parliamentary colleague, the Minister for Justice and Customs, is planning to release a revised ‘risk-based’ exposure Bill and a package of rules by the end of May. There will be a further consultation period on these documents.
While the Treasury is not the lead portfolio in this area, I can assure you that the Treasury Ministers have been very conscious of the potential impacts of these reforms.
Consequently, in consultation with the financial sector, my department is closely monitoring developments in this area. And of course, we are always mindful of the need to minimise the compliance cost and regulatory burden on industry.
I am aware of the contribution that the SDIA has made to the Government’s Ministerial Advisory Group, and thank you for taking the time to help ensure that we shape reforms in this area appropriately.
Commodities market
I’ve talked about some challenges and changes that affect your industry both directly and indirectly.
One of the direct benefits I can see for your industry has been the continuing strong performance of the Australian economy. And indications are that this strong performance is set to continue.
We are already reaping the benefits of China’s
re-emergence as a world power. Twenty-five years ago, China accounted for less than one per cent of the global merchandise trade. Today, it accounts for over six per cent.
This extraordinary trade performance has been fuelled by massive quantities of material inputs — nickel, aluminium, copper, zinc, steel, iron ore and coal.
And we have consequently seen a very notable rise in commodity prices, especially for coal and iron ore.
Average prices received by Australian non-rural commodity exporters have increased by over 60 per cent in the last two years alone.
Business investment
One of the key policy objectives for the Government, in the pursuit of increasing wellbeing, is to ensure that our economic climate is conducive to investment.
Growth in business investment adds to Australia's capital stock, boosting the economy's productive capacity.
The Government’s sound economic policies, along with high commodityprices,have seen business investment grow substantially over the past four years.
With the impressive performance of our commodities markets, it wouldn’t surprise this audience to note that business investment has been particularly strong in the mining industry, and in related parts of the manufacturing, construction and transport industries.
But notably, investment growth has also been
broadly-based, with strong investment evident in the finance, property and business services sector and in wholesale trade.
Despite this performance, it’s not a time to sit back and ignore the role that regulatory reforms can play in enhancing our economic performance.
We should not fall into the trap of saying – “well, the economy is doing okay, and that’s the end of it.”
Our responsibility on behalf of all Australians is to keep striving for enhanced wellbeing.
The Government's ongoing programme of reform has not been easy to implement. WorkChoices is a good example of reforms that we knew we had to keep pushing for, in the interests of the wellbeing of Australians overall.
And we did it knowing we had to tackle Union and Labor Party opposition head on.
But these reforms add to the flexibility of the economy, thereby boosting productivity and consumer and business confidence.
And so we pressed on.
The recent Budget reveals the expectation that business investment will increase over the forward years. In that context, the Government is working to ensure the economic environment to help companies raise capital is maintained.
The initiatives announced in the Budget should help to maintain a stable environment and growing economy, in which businesses can make profitable and sustainable investment decisions.
This is complemented by the tax relief, assistance to families, and superannuation changes announced in the Budget that will also have the flow-on effect of increasing investment in the Australian share and equities markets.
Infrastructure
The Government is also looking ahead to our infrastructure needs in order to foster productivity and further our strong economic performance.
The policy settings we already have in place ensure that there is be no shortage of private capital available for infrastructure projects.
There is a strong demand for investment in infrastructure projects from the private sector.
A large proportion of these funds are sourced from superannuation funds.
Investment in infrastructure assets is seen as a suitable investment for superannuation funds because of the income streams they provide, as well as the potential for long-term capital growth.
Developing infrastructure projects that serve these competing needs is a challenge for the private sector and, in some circumstances, governments.
The Australian Government has made its own significant financial contribution to the development of land transport infrastructure, particularly through the AusLink programme.
In the Budget, the Treasurer announced a major increase in AusLink funding, in the form of an additional $2.3billion in funding for road and rail infrastructure.
For my part, I am pursuing the objectives of removing complexity and regulatory obstacles in the corporations and financial markets sector, to provide an even smoother ‘infrastructure’ if you like, to increase business investment and innovation.
Reducing the Regulatory Burden
Effective regulation is an important tool for delivering Australia’s social and economic goals that are so well encapsulated in the Wellbeing Framework.
Since my appointment to the Treasury portfolio, I have been working to reduce what the Business Council of Australia has described as the “tide of Government red tape”.
I’m well aware that a regulatory system can easily become messy, complex and unwieldy. If you look at the size of some of our statutes, or even just flick through the Table of Contents, you’ll know what I mean!
And I’m familiar with the day-to-day difficulties of managing a business — and how much more difficult it is when you seem to spend most of the day dealing with paperwork.
So when I look at the Treasury portfolio, and my areas of responsibility within it, I have sought to scrutinise the laws we have in place as well as those being proposed.
And there have been more than a few times that I’ve concluded that we can achieve our current economic policy objectives in a more simple, transparent and cost-effective way. For both consumers and business.
A Simpler Regulatory System
As a first step toward the process of implementing what I like to call A Simpler Regulatory System, on 7 April this year, I released the Corporate and Financial Services Regulation Review Consultation Paper.
Reducing the complexity, and increasing the simplicity of regulation, remains my primary goal.
I’ll give you an example of what I’m trying to achieve through my consultation paper. And that’s clarifying the threshold definition of “sophisticated investors”.
At the moment, the distinction between wholesale investors and retail investors relies on a threshold test. This test does not always fit in with how “sophisticated investors” work.
I have therefore asked for comments, including yours, on whether we should establish an accreditation system for sophisticated retail investors, to enable them to be treated as wholesale investors.
I’m interested in seeing whether you believe such a system would assist retail investors to be treated as wholesale investors. Or whether it would lead to increased complexity and potential confusion.
Register of people who have broken financial services laws
I mentioned before that I am aware of the contribution the SDIA is making to policy considerations currently before this Government. It is one I value very highly.
When I met with your Board a couple of months ago the idea was floated with me of having some sort of a mechanism to give consumers better access to information about people who have broken financial services laws.
Your Board explained that this could be done voluntarily, but noted how much more effective it would be if instead, there were provision for such a mechanism in the law.
For example, through a register maintained by ASIC, and that is similar to searching for people who have been disqualified from involvement in the management of a company.
I was being asked to finalise the terms of the consultation paper a short while later. I didn’t hesitate to include this issue in the paper.
I’d like to stress that my work on streamlining regulation is part of a broader Government initiative.
The consultation paper was released alongside Rethinking Regulation, the Report of the Taskforce on Reducing the Regulatory Burden on Business, chaired by Gary Banks.
Work on the consultation paper will take place in tandem with the changes that flow from the Banks Report.
I would like to emphasise at this point, that an important ingredient in achieving A Simpler Regulatory System is to come up with a comprehensive package of ideas for improvement. It is why consultation and input from all stakeholders is critical.
The way ahead
Australia has come a long way since the dark days of high home-loan interest rates, record unemployment, and outrageous business overdraft rates. A time when people felt their wellbeing was seriously in question.
We in Government are keenly aware that people’s livelihoods, their mortgages, their jobs, their businesses, and their standard of living depend on the judgements we make — on their behalf — every day.
It’s a huge responsibility, and one we take very seriously.
The Howard Government has turned Australia’s economic fortunes around. Through our policy decisions, our planning and our fiscal management, we have ensured that Australians can look to us to protect and foster their enhanced wellbeing.
And I hope members of the securities and derivatives industry will agree that the last ten years have provided for more prosperous times than those immediately prior to 1996.
My memories of those years impel me to work very hard - I am loathe to sit back and relax.
We should never to lose sight of the tasks that lie ahead.
Conclusion
In conclusion, we are working to maintain a policy framework that encourages further business investment …
We are reforming workplace relations laws to increase participation and productivity…and the attractiveness of retirement and superannuation savings.
We are thoroughly reviewing our regulatory systems to ensure they are less complex…more efficient…and work in a way that produces optimal outcomes.
Australians value the role that your industry plays in enhancing the wellbeing of Australians through the participation you make, day in and day out, to the economy.
It isn’t coincidental that we have, by world standards, such an impressive number of shareholders in our population!
The Government will continue to work to deliver its key policy goal – responsible economic management. Simpler regulation…strong budget surpluses….and spending on key priorities, will in combination, improve the wellbeing of all Australians.
I look forward to continuing my work with the stockbroking and finance industry, to make sure we never lose sight of that vital goal.
Thank you.