As the region begins a slow return to economic recovery after its economic meltdown, Sydney, Australia, is jockeying for position as a centre for global financial services. Critics say there are many points against Sydney becoming a financial hub Australia's location and high personal income taxes, among them. However, the Australian Government believes there are just as many pros and with me to tell me more about them is Joe Hockey, Australia's Minister for Financial Services and Regulation.
BLOOMBERG: Firstly, how do you see Sydney having an edge above centres like Hong Kong, Singapore and Tokyo?
MINISTER HOCKEY: Well, I don't necessarily see Sydney as being in competition with those places. I am more concerned for the Asian region as a whole. Sydney, Hong Kong and Singapore represent around 3% of the global market. Now, that is not very much at all. Add in Tokyo another 15% - and we are still less than 20%. At the same time, the United States is more than 50% of the market and certainly Europe is very significant as well. So, the concern for me is that in fact, out of the growth of global markets the Asian region will lose out. And I believe that it is very important that we work together in partnership with other jurisdictions throughout Asia and try to grow the pie rather than try and steal it from one another.
BLOOMBERG: How optimistic are you about merging those Asian markets, with equities etc?
MINISTER HOCKEY: Well, we've got to start from a common base. And the common base has to be relatively consistent regulation. It is very important once we have that common base to be able to build on our links and our relationships. And we can do it. We can build a common market. We can build a common clearing and settlement platform but we need to harmonise, as far as possible, the regulation in the markets.
BLOOMBERG: How far have you gone in advancing the push for establishing a common market?
MINISTER HOCKEY: I have certainly had discussions with very senior officials here in Hong Kong. I have also had preliminary discussions with various officials in Singapore. We will be having a meeting before the end of the year to discuss how we can further this common goal.
BLOOMBERG: Now, as far as Australia is concerned, selling Sydney as a regional financial hub that country has a long history as being an over taxed and over regulated country. What is the Government doing to address that opinion?
MINISTER HOCKEY: In fact, Australia's regulation is being copied around the rest of the world. Regulation is your insurance policy against volatility and (inaudible) the extreme downsides when things turn against you. So, I think the Asian financial crises changed the perception of many serious market players about the importance of regulation in a volatile region. So, now many jurisdictions across Asia are copying our regulation . The regulators I am responsible for are spending a lot of time working right across Asia from the Philippines to India and north to Korea assisting with development of structures that are pretty closely modelled on what Australia has. In relation to tax, we have undertaken the most extensive reform of taxation in Australia's history. We have halved capital gains tax. We have reduced personal income tax so that 80% of Australians pay no more than 30c in the dollar. Now, people living in Hong Kong or Singapore might say 'well that is still a high rate of personal tax'. The fundamental difference is that in Australia, education and health are free. In Australia you can buy a family four-door car for $US15,000. In Australia, you can buy a three-bedroom home with garden in Sydney for about $US150,000. So, those sorts of factors come into play when you are talking about quality of life. And it is important when you a paying people a substantial amount of money, and human capital is the most valuable asset in your business. In financial services, human capital is the number one issue.
BLOOMBERG: In the United States, if an executive is high enough in the company they can have a lot of sway to where they will set up a regional hub. Now if that executive is faced with a personal income tax of 47% in Australia versus 15%, he is likely to choose Hong Kong with that lower rate. And the company is going to pick up the bill for education .
MINISTER HOCKEY: If tax was the sole determinant, then every business in the world would be run out of Bermuda. The simple fact is that tax is not the sole determinant. The size of the economy matters and the Australian economy is larger than that of Singapore, Hong Kong and Malaysia combined. The financial services industry in Australia is twice as large as agriculture in Australia. The IT&T is larger than anywhere else in the Asia region, outside of Japan. If you look at our equities market and our futures markets, they are either the largest or second largest in all Asia. So, what happens, is that some people in Asia tend to try and sell the myth. But the reality is far different. And for all those international banks and insurance companies and IT companies and telecommunications companies that have come to Australia, they make a lot of money.
BLOOMBERG: On the issue of Australia's location, the assistant governor of the Reserve Bank only recently said 'Australia is a relatively small country a long way from major population centres and hence customers that drive that activity.' How big a problem is Australia's location?
MINISTER HOCKEY: As each day passes, distance becomes less relevant. Now, I wouldn't try to say for a minute that Australia is located geographically in the middle of Asia or the middle of Europe. It is not. It is where it is. And in a sense, that has helped Australia develop a lifestyle which, at the end of the day, what really matters to all of us. As each day passes, telecommunications and IT represent a bridge that the world has never had. Now Australia in the 1800s and the 1900s and at various times enjoyed the highest standard of living in the world. And yet we lost that as did many other countries when new industrial revolutions came to the fore. Since that time, we have now entered a golden economic era in Australia, where we've had better than 4% annualised growth for 12 consecutive quarters. We have had the highest GDP or second highest GDP growth in the world when seven out of our top 10 trading partners were in recession or depression. So we did because Australia is a growing nation. It is a nation which has huge capacity in IT&T, reflected in IBM's decision just last week to locate one of its headquarters for innovation in Sydney, spending $30 million and employing 300 IT specialists. That is the tip of the iceberg of what is happening. We have been very reluctant to tell people how good it is.
BLOOMBERG: I also understand that some of the regulations are not particularly palatable for some European companies, for example Europe's second-largest funds manager Skandia recently has baulked at investing in Sydney.
MINISTER HOCKEY: Well, Skandia represented three people and very little money
BLOOMBERG: They said it was a substantial investment
MINISTER HOCKEY: Skandia did say that, but my information says that it was not that significant investment. In fact if you take Deutsche Asset Management, who has just moved their Asian headquarters from Tokyo to Sydney and brought $US80 billion, that is a different story, isn't it? Or, Vanguard, one of the world's biggest funds managers runs its Asian headquarters out of Melbourne, or Principal, from Des Moines, Iowa, runs its Asian equities out of Sydney, or a number of other funds managers which I could keep going on with, that run their Asian operations out of Australia
BLOOMBERG: How optimistic are you, and in what time frame can you attain this goal of establishing Sydney as a financial hub.
MINISTER HOCKEY: We have always said that it is a brick-by-brick construction job. As each day passes Australia becomes an attractive place to run global financial services, if not front office, then back office. That is because the cost of labour is cheaper than anywhere else, the technology is just as good if not better than many other places and also, most importantly, the education system supplies the labour for financial services. Now you have got to remember the scale of this. Singapore is the same size as Melbourne in terms of population. Now, we can become a financial centre but we are going to have to keep building it.
BLOOMBERG: OK. Thanks for joining us. Joe Hockey, Australia's Minister for Financial Services & Regulation.