Good evening.
Ladies and Gentleman. I am delighted to have the opportunity to speak here tonight on where I see Australian debt markets heading in the new millennium.
In particular, I would like to elaborate on two themes.
Firstly, I would like to provide you with a brief overview of the Commonwealth's debt management strategy and its implications for corporate debt markets.
Second, I would like to update you on the initiatives the Government is pursuing as part of its strategy to develop Australia as a centre for global financial services.
As you would all be aware, Australia's public finances are in excellent shape. This is due in no small part to the Government's vigorous fiscal consolidation program that we commenced in 1996.
The three budgets we have delivered since then have been in surplus and, together with the proceeds from Commonwealth asset sales, have substantially reduced net government debt.
Indeed, it is expected that by June 2000, general government debt will have almost halved from its peak of over $96 billion in 1996‑97, to an estimated $51 billion. The Governments successful debt management strategies have reduced interest expenditure and contributed to Australia maintaining a robust resilient economy, regardless of the difficulties the rest of the region has recently experienced.
This process of, if you like, 'Paying down the mortgage', has had definite consequences for the Australian debt market, which I imagine you will have discussed at this conference.
The Government is acutely aware of the significant relationship between the liquidity and efficiency of the Commonwealth Government securities market and the corporate securities and derivative markets.
The stock of various Government and Treasury bonds that we have issued has fallen from around $81 billion in 1996 to around $65 billion currently. It has been this reduction that in part, has provided a real fillip for the growth and development of the corporate bond market in Australia.
In fact the last five years have seen non‑government issuers enter the Australian debt markets in numbers. Today, the market for corporate bonds, together with mortgage and asset‑backed securities totals close to $50 billion. This reflects the trend that investors, who may previously have allocated funds primarily to government debt, are more willing to invest in the broader spectrum of instruments that are now available.
The reduction in Commonwealth Government securities has also impacted on the construction of financial indices. For example, in 1998 Australian Indices, in conjunction with William M Mercer, released a new range of debt market indices.
Reflecting the reduction in Commonwealth Government securities, these indices have a greater weighting towards non‑Government debt such as corporate and CPI issues. If these indices are used as industry benchmarks, fund managers will be obliged to invest in corporate bonds to match the benchmark, which may result in further demand for corporate issues.
These trends indicate the continued evolution of a deep, liquid and efficient corporate debt market.
However the Government is aware that by reducing its net debt it still has a role to play in the market. Most importantly a liquid and efficient benchmark government yield curve must exist for the pricing of other debt issues. Therefore the policy of reducing government bonds on issue will be managed in a way that achieves this objective.
This policy will also propel the continued growth and development of related markets such as the bond futures and repo markets, which provide additional liquidity management and hedging tools.
Whilst we recognise our achievements in managing this process thus far the Government is contemporaneously promoting the maturity and depth of our markets in a more global context. In my role as Financial services ambassador I have travelled extensively. I continue to promote the discernible advantages of Australia as a Financial centre. My job is made easier with the support of a reforming Government that has initiated groundbreaking reform in the area of taxation, banking and corporation law. There is a strong, credible story to tell. And there is no shortage of listeners.
Australia's credentials as a financial centre are built on four key foundations.
Firstly, Australia's financial markets are deep, liquid, and transparent offering a wide range of sophisticated products. Whether it is in equities, bonds, synthetics, or managed funds, we continue to punch above our weight.
In 1998 the SFE's 3 and 10 year bond futures and options, as well as the All Ordinaries Share Price Index futures and options contracts, were among the 15 most heavily traded contracts of their type in the world.
These Index derivative products especially, continue to grow in volume and importance as a part of the fund manager's toolbox, especially as index based investment products gain popularity in Australia. This is evidenced by the Dow Jones and the SFE linking together to provide investors with the futures and options contracts over a variety of Asia‑Pacific Extra Liquid Series indexes.
Australia's significance as a financial market in its own right, and as a regional financial centre, has been recognised by our recent invitation to participate in the Financial Stability Forum established by the G7.
Secondly, we have a well‑educated, multi‑skilled, multi‑lingual workforce. This diversity of skills and background enables us to attract and exploit global investment opportunities.
One in 20 Australian inhabitants is Asian‑born with more than 2.4 million Australians speaking a language other than English at home. Over 800,000 Australians speak an Asian language. As a result Australian cities are fast becoming the regional location for companies requiring such skills. Where else in the region can you find fluent Bhasi/English gold marketers? Or multi‑lingual Call centres that employ staff who can converse in all the regions languages?
Thirdly, we provide a secure business environment offering political stability, a sound and effectively regulated financial sector, and world‑class commercial infrastructure.
Australia has built an effective financial sector regulatory regime which provides security and integrity, two ingredients vital to investor confidence. The International Monetary Fund has hailed these changes as 'pathbreaking reforms which put Australia at the forefront of international practice'. Recently, ex‑Fed chairman Paul Vockler commented specifically on the capacity with which Australia has dealt with regional financial instability. The Australian economy continues to provide access to the opportunities of the Asian region without the risks.
And finally, the Australian Government is proactively confronting the challenges of the new millennium ensuring a smooth transition for the financial sector. Australia can boast it is better prepared than most for the challenges of 1 January 2000. For example, on Y2K compliance, the Gartner Group continues to rank Australia among the most prepared countries in the world, along with the USA, UK and Canada. This is a vital achievement and reinforces our reputation as a safe harbour in a volatile region.
The foundations that we have laid are delivering results. Global Business recognises the importance of our strong, stable and vibrant economy when deciding where to position regional offices. Both State Street and Citibank have recently located significant infrastructure in Sydney.
However the Government also recognises the role of a competitive taxation formula in attracting such investment. It is an essential ingredient in our attempt to 'level the playing field' when compared to alternatives in our region. In this area we are fast approaching the parity we believe overseas investors will find compelling.
While the spearhead of the recent reforms has been a broad‑based goods and services tax--- which will mean 80 per cent of Australians will pay income tax of no more than 30 per cent other changes are specifically targetted at the financial services sector.
For instance, the reforms abolish a range of inefficient financial services taxes including FID and stamp duty on marketable securities. This will save investors more than 8 billion dollars in taxes and compliance costs over the next six years.
The Government has also widened the exemption from interest withholding tax on corporate bonds, which we believe, will underpin an increase in liquidity in this fast developing market. Already this year Morgan Stanley have managed over 800 million US dollars worth of corporate bond issues on behalf of Australian Institutions.
We have also extended the eligibility for institutions wishing to become an Offshore Banking Unit. Fund managers, life insurance companies and other companies, including providers of custodial services are now eligible to apply for offshore banking unit status.
Foreign Investment Fund rules have also been relaxed to exempt certain investments located in the United States from this tax. For example US mutual funds are now able to compete directly with Australian superannuation funds for employee contributions. As this sort of competition is introduced the ultimate beneficiary will be the consumer.
As I am sure you are aware the governments current focus is on business taxation. At the end of July, the Government received the report of the Review of Business Taxation, chaired by John Ralph. The Review dealt with the design of the business taxation system, the processes of ongoing policy making, drafting of legislation and the administration of business taxation. Tonight I can tell you that the report is with cabinet and we expect to make an announcement in the near future.
Finally I would like to update you on the progress of the Global Financial centre taskforce, which has been established to enhance Australia's capacity to participate fully in the global growth in the financial services industry.
The Task Force will work closely with the financial services industry. Key activities will include promotional and marketing activities as well as policy development, information gathering and educational and training initiatives relating to the financial sector.
Specific initiatives will include
- The set up of a global financial services Regulatory Advisory Committee. This will be chaired by the Treasury and include the RBA, APRA , ASIC, the ACCC, the ATO, and the ABS to consider regulatory and promotional issues;
- A focus on improving financial data collection to benchmark Australia's performance;
- The creation of the Sir Otto Niemeyer Scholarship program that will provide post‑graduates from Australian tertiary institutions who have a proven interest in the financial sector with the chance to work on rotational secondment with the Commonwealth Treasury, RBA, APRA, ASIC, ACCC, ATO and the ABS; and
- The re‑opening of Treasury's regional office in Singapore to improve the quality of advice to the Government on regional economic and financial developments.
I am happy to announce that the Task Force office opened its doors for business on Monday.
Ladies and Gentlemen I have spoken tonight about many of the governments specific efforts to support and encourage the Australian financial services industry. We have put the building blocks in place to cement Australia's position a financial centre. We are now in a position to provide the world's capital with access to the Asia‑Pacific region without the risks inherent in many parts of that region.
In particular, our robust economy should enhance Australia's position as an investment destination, help to deepen and improve the liquidity of our financial markets, and ensure that Australian consumers and businesses continue to have access to the best, most cost‑effective finance and advice.
Australia now stands ready to capitalise on these comparative advantages and I urge all of you here to take up this challenge.
Thank you.