QUESTION: The Government has reiterated and upgraded its goal that Australia should become a global financial centre even before it has achieved the goal of becoming the second centre in the region. Are you being too ambitious?
MINISTER: No, we're not being too ambitious because we recognise that globalisation is occurring faster than perhaps anyone really anticipated. There is no readily identifiable time zone centre in the Asia Pacific and there are four competing city centres, Tokyo, Hong Kong, Singapore, Sydney. We believe that we can take a leading role in the region. We have the sixth largest funds under management in the world. We've got the largest futures market in the region, the second largest equities market in the region and we believe we've got the right regulatory framework and the best IT to be able to support the development of a financial centre.
QUESTION: Isn't Australia always going to face the difficulty that physically and geographically it is a long way from other major financial centres, not just the European or US financial centres, but even from places like Singapore and Hong Kong? Is it actually feasible for companies to have a major presence in Australia?
MINISTER: Well, they already do have major presence in Australia: Deutsche Bank, Citigroup; there are a large number of other major financial institutions that have a very significant presence in Sydney. We believe door-to-door is just as quick from Hong Kong to Sydney as it may be from Hong Kong to Jakarta or some other centre. What we are focusing on is the benefits of new technology, the internet and what new technology, the internet and globalisation of financial services means for the region. Sydney is focusing on providing access to the Asian region without the risks of the region. We believe that world capital markets can access the Asian region and hedge the volatility of the region through our markets in Australia.
QUESTION: Doesn't the advent of new technology represent risk in itself in that if you can trade through your internets, intranets, then ultimately it won't really matter where a stockbroker or currency dealer is based, and that people will realise this and decide that an investment in Sydney is money wasted?
MINISTER: Well it certainly isn't money wasted because what may well drive those sort of business decisions in the future will be quality of life - ready access to a well educated workforce that is fluent in a large number of languages. We believe the workforce in Australia where 47% of the workforce has tertiary form of education where we have very diverse language schools and we've got excellent IT and world class simplification in regulation, the cocktail comes together to prove to be something that overcomes distance. Money is increasingly failing to discriminate against distance and against time. As every day passes Sydney becomes more viable as a world financial centre.
QUESTION: Will you be encouraging financial institutions in Australia to be the example of the Stock Exchange to extend opening hours so that trading time zones become more compatible, just as European stockmarkets and financial markets in general are harmonising their opening hours?
MINISTER: Well, the Australian Stock Exchange announced last week a strategic link with NASDEQ and that is another step along the way to the harmonisation of the international markets across time zones. We believe the depth and liquidity of our markets, both the Futures Exchange and the Stock Exchange, represent a very good opportunity for closer links with American and European markets. Our markets are open already in the time zone gap between the United States and Asia and that time zone gap represents an opportunity for us.
QUESTION: You mentioned the Australian Stock Exchange is the second largest by capitalisation in the region. The Telstra partial privatisation will add another $8 billion I believe? Even so, at present, Australia is not seen globally as a market that influences the others around it in the way that, say, Hong Kong, and to some extent, Tokyo, and to some extent, Singapore do. Can you see that changing?
MINISTER: Well, I can see it changing because the 2,000 largest companies in the Asian region have still not listed on any Stock Exchange. The Australian Stock Exchange brings with it a very high level of integrity and our reporting systems give some certainty to investors, particularly investors out in Europe or America that the stocks that they are investing in have appropriate levels of transparency and accountability. That is a comparative advantage for the Australian Stock Exchange in our region and it is something that I think we will be trading on over the next few years. The depth and liquidity of the Australian equities market continues to grow. There will be in excess of US$100 billion in demutualisations and privatisations that would logically occur over the next five years. That provides further depth and liquidity to the Australian equities market. You place on top of that the fact that only last week we passed legislation that would abolish all stamp duty on the transfer of marketable securities which has billions of dollars being reinvested into the market and our very best modelling indicates the Australian equities market could grow by about 10% as a result of that decision alone over the next two to three years, is a very good indication of our commitment to grow the market and increase the depth of liquidity of the equities market.
QUESTION: That's in terms of volumes?
MINISTER: and gross capitalisation of the market.
QUESTION: Improving the regulatory climate as you have done is one thing but companies still are looking for tangible reasons to set up shop in Australia. Would you be offering more concrete incentives in the form of subsidies or tax breaks to major institutions or even smaller institutions pondering making the move?
MINISTER: Well, we've thought very carefully about this and we believe that it is probably more important no, it is more important to make sure that the fundamentals are in place to build a long term financial centre than it is to offer baubles and trinkets that might lead us to end up running a caravan park where a business might come and operate two or three years, maybe a little bit longer then pack its bags after that period and after the benefits have gone they take off to another jurisdiction. We don't want that we want a long term, viable financial centre. Having said that, of course we'll look at some opportunities that will help with the establishment costs in Australia, but certainly we're not about trading the interests of a mobile market and international flows that have placed their patent in Australia previously for what may be seen as a short term gain.
QUESTION: Leading on to regulation, Bob Joss, the former head of Westpac, recently attacked Government policy, blocking mergers between the four biggest Australian banks. What danger do you see in depriving them of critical mass in this way. Do you see a danger that it will put their chances of succeeding in the international market place at risk?
MINISTER: Not at all. In fact, there is nothing to stop Australian financial institutions from expanding offshore and, in fact, they are doing that. National Australia Bank I think has over 40% of its revenue coming from its operations offshore and ANZ is in a similar position. AMP I think has more than 50% of its revenue coming offshore. A number of other Australian financial institutions are in that league. We encourage that. If we do want to be a financial centre we want more Australian financial institutions acting in Asia in particular and we want more offshore institutions acting in Australia. The focus on four pillars is about domestic retail banking and it's a highly competitive market for the mums and dads. We believe it should be more competitive for small business in Australia and the Government's already set some objectives before it looks again at changing its current policy on four pillars.
QUESTION: How far would you allow foreign institutions to come in to the Australian market bearing interest in Macquarie or one of the four pillars?
MINISTER: Well, the Government's made its policy very clear. That is that there are no additional restrictions on foreign bids for major Australian financial institutions. Noone's put a bid on the table. When they do then the Government will obviously look at it.
QUESTION: So there are no policy restrictions in place at the moment?
MINISTER: No, the only restrictions are the same restrictions that everyone faces which is a Foreign Investment Review Board an assessment by the Treasurer about extension of ownership of a particular bank, but other than that, our policy is unchanged.
QUESTION: In wanting to make Australia the regional centre for financial services, we're coming back to Sydney all the time. But, of course, Melbourne, for example, has its own core of financial firms. What impact might this have for firms operating out of Melbourne?
MINISTER: I think its great that we've got competing capitals. The Government talks about Australia as a financial centre because Australia benefits as a whole if there is greater competition and that we have a regional or global financial centre on our shores. All Australians benefit from the development of Sydney or Melbourne as a financial centre and so we welcome it and we promote it and we're actively around the world promoting that. Sydney is obviously the centre of financial activity. Melbourne is very much a centre for IT. It is a great comparative strength for Australia that we have got two very strong cities that provide opportunities for financial services. I might add that Citigroup has operations in Brisbane, Bankers Trust has operations in Adelaide, or [inaudible] has operations in Adelaide, and the opportunities for further development of financial services in places other than Sydney are obviously there.
QUESTION: How do you expect the interest withholding tax exemption passed last week to lift the corporate bond market?
MINISTER: Last week we passed a large amount of legislation that will help assist our ambitions to become a financial centre. Apart from the GST legislation which will provide tax free status for the export of financial services, which means that 80% of Australians pay no more than 30 cents in the dollar in tax, and apart from the abolition of stamp duty on the transfer of shares and the abolition of financial institutions duty, the bills we also passed covering the abolition of interest withholding tax on corporate paper are going to provide significant stimulus to the market with the development of a corporate bond market in Australia. Over the last few months we have seen improvement in the depth of liquidity of the corporate bond market. This should provide significant stimulus to international investment interest in our bond market. The Government remains very committed to maintaining the depth and liquidity of the Government and semi-Government bond markets. Other initiatives last week, such as foreign investment fund access provisions and the extension of offshore banking units, the 10% tax rate, to funds managers, life insurers, custodians and so on. Those initiatives are going to have very positive impact on the development of our financial centre ambitions.
QUESTION: You gave approval in Parliament allowing more companies to establish offshore banking units. What do you expect to flow from that?
MINISTER: We expect that there will be an increase in trading activity. We are trying to provide at every point further stimulus to the development of new markets and the development and improvement in the depth of liquidity of existing markets. Each of our initiatives are about chiselling away at the speed humps so that we can get the car going faster and faster on a safe road, and that is important. The offshore banking unit regime is about encouraging domestic financial institutions and offshore financial institutions to increase their trade through Australian markets.
QUESTION: The economy remains robust through the first quarter, but the Government is looking for the pace of growth to slow. When do you think that slowdown will kick in and does it pose any threats to the reform agenda?
MINISTER: This Government has shown that notwithstanding any external influences on the economy, we are determined to pursue reform, that is reform of the financial sector and simplification of our corporate laws, better prudential supervision of financial institutions, industrial relations reform, and we've got a great story to tell. The number of industrial days lost, working days lost, through disputation last year was less than any year since 1913 and the economy is strong because we've done the hard yards on regulatory reform and competition policy in prudential supervision and the budget of our own expenditure and in taxation reform now. The zeal for reform is not dissipated at all. We are very committed to ongoing reform. Last Sunday the Prime Minister spoke to the nation and said that we must continue reform because the success of the Australian economy today is the result of the reforms of yesterday. The reforms we undertake today ensure that we will have a strong economy into the future and we are very confident that the Australian economy can continue to withstand volatility in the Asian region. We want to build an economy that can insulate itself from the volatility of world financial markets to some degree and much better than what we have been able to do in the past.
Thank you very much.