SPEAKERS: Mr Jim Maher (moderator), Joe Hockey, Federal Minister for Financial Services & Regulation, Michael Egan, Treasurer of NSW
MR MAHER: Ladies and gentlemen, welcome this morning and thanks very much for coming. This is a fairly informal discussion. It has been billed as a debate and it might turn into that. It is a discussion between the relevant ministers about Australia's place in the world as a global financial centre and the way we would like to be advanced in that as fast as possible. We like to think we are on the way to doing that.
I am joined by Hon. Joe Hockey who is the Australian Minister for Financial Services and Regulation and Hon. Michael Egan who is the New South Wales Treasurer and Minister for State Development. The format of this is that I will throw a few questions at them. There will be a bit of byplay between them and some discussion of the issues. If you have a question from the floor, feel free to put that question. Please identify yourself and we will kick along the discussion.
Could I start by asking Minister Hockey what effect the Olympics will have on the government's promotional efforts in the finance industry and potentially on the Australian financial services sector?
MR HOCKEY: Thank you, Jim. I think the perception of Sydney and Australia is going to change after the Olympics. For some period of time it has been a little difficult for us to get on the international map when it comes to recognition of an Asia-Pacific financial centre. If you going to build operations in Asia, you might naturally drift towards Singapore, Tokyo or Hong Kong.
What we have done over the last two years is start to get Sydney and Australia on the map. There is no doubt that putting on the biggest peacetime event in the history of humanity is going to grab the attention not just of the CEOs around the world in financial services or IT&T but also importantly of people at middle management level who might have been wavering about whether they would go and visit Sydney to think about regional operations. They may well be tempted to come down to what is a great city.
MR MAHER: Minister Egan, does it make the promotion of Sydney so much easier?
MR EGAN: Undoubtedly. For a huge number of the people around the world who are watching the Sydney Olympics, this is their first impression of Sydney and Australia. I think it is going to be a very favourable impression, and first impressions often last a lifetime. So I think for the first time people around the world will know about Sydney, know about Australia and be aware that we are not just a resource based economy. We are a much more diverse, mature, sophisticated economy than most people around the world ever thought. And also we are a much more sophisticated society. The most multicultural city on earth is Sydney. I do not think there is a city anywhere in the world that speaks as many languages as Sydney does. New York may rival us but nowhere else in the world.
MR MAHER: Minister Hockey, be careful with this one because there might be people from Melbourne present. Why promote the whole of Australia when everybody already knows Sydney is already the financial centre of Australia?
MR HOCKEY: Sydney is the largest financial centre of Australia. There is no doubt about that. It is Australia's largest city. But what we are arguing is for the first time in history, as the Economist wrote in its Australia piece just this month, for the first time in history of humanity, we are entering an age where distance doesn't matter. IT&T is delivering access in real time to every part of the earth. What is happening is that if you are a very highly paid trader, funds manager or someone in IT&T, you can make a quality of life decision. That quality of life decision is going to have greater weight than it ever previously did, all other things being equal.
We argue for Australia, and I argue for Australia and for Sydney, Melbourne and every other centre because time and time again we are finding decisions are being made about all parts of Australia and not just Sydney. Lehman Brothers announced last week that it is going to start up Asia-Pacific operations in Melbourne. Vanguard, the world's largest funds manager, has set up its regional headquarters in Melbourne. City Group has moved major call centre operations to Brisbane. Notwithstanding that, you find Deutsche Bank has moved its entire Asian funds management from Tokyo to Sydney.
So it really does mean that the decision is not about Sydney alone; it is about Australia and the qualities that we all have as Australians and can add to the mix. Putting it in perspective, Singapore has the same population as Melbourne, and Hong Kong at six million people is about Sydney and Brisbane combined. Put it in an Australian perspective, the economies of Hong Kong, Singapore and Malaysia combined are smaller than the Australian economy. So we are 19 million people here with one of the most robust, efficient, productive economies in the world. That puts us in very good stead as Australians and, of course, Sydney is the largest financial centre.
MR MAHER: Minister Egan, have we got the runs on the board though; who was moved here already?
MR EGAN: I think we have. Just in the last 12 to 18 months there has been a very impressive list of wins for Sydney. I will go through some of them: Citibank, Deutsche Bank, Western Union Financial Services, Dow Jones Indexes, Goldman Sachs and Morgan Stanley Dean Witter, Merrill Lynch, Mastercard International, HSBC Bank, Royal Bank of Scotland Alliance Capital Management, Royal Bank of Canada, Charles Schwab, Deutshe Asset Management and the World Bank. It is an impressive list just in the last less than two years. So we have the runs on the board. I think the success of international companies that have established their operations here is really our best selling point. Most of themin fact all of themI haven't found one who hasn't conceded that they made the right decision in setting up in Australia, particularly in Sydney.
MR HOCKEY: You can add to that Lab Morgan, which is the technology arm for JP Morgan, has set up its Asian base here in Sydney. Goldman Sachs have announced that they are setting up their Asian e-commerce base in Sydney as well. That link with IT is very important. The announcement, as you know, of IBM's e-commerce initiative setting up its Asia hub here in Sydney. Oracle, Sebel and Cisco have all set up major operations here. It is all very important for Sydney as an Asian financial centre.
MR MAHER: Can I ask you both then: what are both governments, the national government and the state government, doing to ensure the fundamentals encourage people to set up here?
MR HOCKEY: We are working very closely with the New South Wales government. The fundamentals are crucial. The Australian economy is one of the strongest economies in the developed world. We have just passed our 13th consecutive quarter of annualised growth of more than four per cent. When seven out of our top 10 trading partners were in recession or depression, Australia had an economy that Dr Paul Krugman described as 'the miracle economy of the world'.
We have done that because governments of both persuasions in Canberra over the last 10 to 15 years, together with state governments, have been restructuring the Australian economy. Few people realise, for example, that services now make up nearly 80 per cent of the Australian economy. Mining is four per cent of the Australian economy. Agriculture is 3.3 per cent of the Australian economy. If you look at the restructuring over the whole economy, financial services is now nearly as large as mining and agriculture combined.
So there has been a restructuring within the Australian economy and an improvement in productivity growth. I think we have got right over the problems of industrial disputation clogging our work force. Surplus budgets are very important, as Michael knows, but, importantly, Australia is a more productive, efficient, international economy than it has ever been before.
MR EGAN: In the same way that Australian society has been transformed in the last 50 years, the Australian economy has been transformed in the last 20 years. We are now a very open, competitive economy, a low-cost economy, a very efficient economy. That began with all of the financial and economic reforms that commenced in the early to mid 1980s. They have stood us in very good stead.
MR MAHER: Ministers, we might take this opportunity for anyone who has questions they have in mind rather than for us to dominate the proceedings.
QUESTION: Minister Egan, during these Olympic Games who are you actively courting to come across to the state of New South Wales to set up headquarters here?
MR EGAN: I think the answer to that is a lot of people. We estimate that are about 10,000 to 15,000 senior business people in town for the Games. We are not courting anyone in particular. We are simply promoting Sydney and Australia as a good place to do business in, a good place to do business with and a good place to do business from. I think those 15,000 people are going to be very impressed with what they see.
QUESTION: Can either of you answer why economists are saying that the Australian dollar is being targeted precisely because we do not have enough high-tech attractive investments here?
MR HOCKEY: Economists like to have lots of different views. Most economists are notoriously incorrect, even by their own admission. However, I think we do suffer from the perception that Australia is still a large quarry, and that perception could not be further from the truth.
When you have a financial services industry that is nearly seven per cent of GDP, compared with 4.4 per cent for mining or 3.3 per cent for agriculture. Even when you take some economists based here in Sydney through the developments stretching from the Harbour Bridge to North Ryde, and point out the operations of Cisco, Sebel, IBM, Microsoft and everyone else and also look at the large number of startups, you can start to say, 'Well, the perception is very different from the reality.'.
The final point I would make is this: we all accept that for too long startups in Australia, good ideas, have had to go searching for capital in other places. That might be there has been a historic tendency in the past, born out of the mining boom of the 1960s and 1970s, that if small companies wanted to raise working capital, they would have an IPO. That is because capital gains tax in Australia was just too high. We have now effectively halved capital gains tax in Australia, the benefits of that are starting to flow through to startups, with private equity turning into a major source of capital for good ideas. I think you will start to see that flow through in the Australian economy over the next 12 months.
MR EGAN: But if anyone looking for good investments in new technology, I would invite you to come to any of the events or functions of the Australian Technology Showcase. There will be some 250 Australian technologies there. They only get into the showcase if they are world beaters. They cover the whole range of economic sectors from manufacturing to agriculture to information technologyyou name it.
It is a very new economy. The significance of the new economy is not so much the new economy areas themselves, you should not look at them as being out there and the rest of the economy being somewhere else, the significance of the new economy is how we adapt to new technology and new ideas to the traditional things that we produce. That is happening at a great in Australia.
MR MAHER: Minister Hockey I will come back to you in a moment. Minister Egan, in terms of attractiveness of Sydney and tax implications, what is your government been able to do about attracting people here?
MR EGAN: Just on tax to begin with, for the third successive year, the New South Wales government has reduced tax rates. I don't think there is a state government in Australia or in any other part of the world that can claim that achievement. We, as part of the new tax arrangements nationally, will be abolishing taxes on financial transactions such as share transactions, financial institutions duty goes from 1 July next year and the bank deposits tax goes down the track.
Australia is not a highly taxed country. By all international comparisons, in fact we are a lower taxed country that the United States of America. Even when you compare Australia with places like Singapore and Hong Kong, you have to be very careful to compare apples with apples. We do not have anything like the land tax that exists in Hong Kong. We do not have payroll taxes anything like those that exist in Singapore. So it is important to compare apples with apples.
MR MAHER: Minister Hockey, is there a strong perception out thereperhaps amongst the highly paid financial sector, the very sector that employs the very people you want to attract to Australiathat Australia has a high tax regime?
MR HOCKEY: There is because our highest tax rate is still too high. There is no doubt about that. But let us put it in perspective. If you are working on Manhattan Island, you will be paying around 52 per cent personal income tax, and that is very high obviouslymuch higher than Australia. You do that when you look at the federal income tax rates and then the state income taxes in the United States which we do not have here.
When you compare the top tax rate in Australia with Singapore or Hong Kong, you are absolutely right: it is too high. But what I suggest is the same as what Michael suggests: let's compare apples with apples. It does not cost an executive $70,000 to buy a basic four door car in Australia. It does not cost your company $US2 million to buy a three bedroom apartment in Sydney as it might in Hong Kong.
Once they start to compare apples with apples, once executives sit down and look at all the costs, including importantly, quality of life costs like: what happens if you fall pregnant; are there appropriate health facilities available in other countries; is affordable health care available; what about education for kids? If you look at all these other quality of life factors, executives are marching with their feet.
MR MAHER: Just getting back to our competitors, are we realistic in aiming to be a major global financial centre when you see in the region places like Tokyo, Hong Kong and Singapore? Where do we stand in the scheme of things?
MR EGAN: We are already very significant. We have the biggest futures exchange in the Asia-Pacific. We have I think the third largest
MR HOCKEY: Second largest equities market after Tokyo.
MR EGAN: We are already of a very significant size and we have potential to become much bigger. That will happen not just because of us promoting Sydney as financial centre but also because of the fundamentals. I suppose the most important fundamental is the talent pool that we have. Our universities just in New South Wales produce more skilled graduates every year than the universities of Hong Kong and Singapore combined. We produce a very skilled work force, a multilingual work force and a very stable work force. We do not have the churn rates that are experienced in a number of other capitals.
MR MAHER: Do you have a scorecard of achievement on this issue of Sydney as a financial centre? Is there somewhere you would like to be in five years?
MR EGAN: By the year 2005, not so much in terms of just the finance industry but here in Sydney by 2005, we expect that we will overtake Singapore as a location for Asia-Pacific regional headquarters. We are well on the way to doing that.
MR HOCKEY: Michael is absolutely right when he talks about the labour force. You ask any senior banker, what is the most important asset of the bank? They say they walk out of the door at 6, 7 or 8 o'clock each night. It is the people. The fact there are 17,000 Singaporean students studying in Australia today, 14,000 Hong Kong students and around 9,000 Indonesians is an indication of the talent capacity that we can generate.
Whilst financial services represent six per cent to seven per cent of the Australian economy, it is still only represents 1 per cent of exports. You become a financial centre when you start to export your expertise. Australia has very deep pools of accountants, lawyers, actuaries and various other sophisticated financial service providers. We have also become a major exporter of regulation.
The recommendations of the Wallis inquiry which the government adopted in 1996 have been copied by Britain with the creation of the FSA in the City of London. Dr Howard Davey, the head of the FSA, openly boasts that the reforms in the City of LondonLondon is the major global financial centreare based on Australian regulation changes. Singapore and Hong Kong openly boast that they are copying a lot of our reforms as well. That is a very good sign. It is a very good sign that we can become a major exporter of services into the Asian region. You have to have the talent pool to support that. We have the talent pool because we have the universities, the colleges and the people to be able to support that growth.
MR EGAN: We are not just an exporter of regulations or regulatory systems either, I am impressed by the fact we are now an exporter of skilled people. You cannot go to any major financial company anywhere in the world these days without seeing Australians in very senior positions.
QUESTION: I am a bit confused with the idea of Australia being part of Asia. How could it be part of Asia and could you define the role of Australia in an Asian economy? Also, I would like to know by which measure have you defined Sydney as the second largest financial sector in Asia?
MR HOCKEY: I can answer that. In international financial markets or global markets, the world is increasingly being traded in three time zones: the American time zone, the European time zone and the Asian time zone. If you speak to any financial institution, they will say, 'Of course, they have got operations in Tokyo. Tokyo is 15 per cent of global markets,' but it is very hard to internationalise your operations out of Tokyo. So they have operations either in Hong Kong, in Singapore or in Sydney or other parts of Australia for that matter, as I told you about a little earlier.
So that is why, for example, Deutshe Asset Management have moved their entire Asian funds management, with some parts left over of course, from Tokyo to Sydney with 114 staff and $US80 billion in funds under management. With the advent of the Internet, a commodities book, a gold book or foreign exchange operations may well trade in any part of this time zone. The book is downloaded on the Internet, sent to London or one of the other centres in Europe, traded during their time zone, downloaded on the Internet and sent to the American time zone, usually New York, traded there and then it fits into our time zone. The east coast of Australia is very well positioned from time perspective to have overlap between London and New York. So that works to Australia's advantage.
The second factor about the comparisons is that it is based on the Morgan Stanley index. Hong Kong and the Australian Stock Exchange vary according to the movement in the Australian dollar or the US dollar, whatever the case may be. But, basically, when you add all the factors togetherthe number of people working in financial services, the size of the equities markets and, importantly, the sophistication of the markets as Michael Egan saidSydney Futures Exchange is the largest financial futures exchange in all Asia, primarily there are two Japanese exchanges. But it is certainly the most sophisticated exchange in Asia. The amount of productswhat the Australian markets are searching for is greater liquiditybut the diversity of products available to be traded out of Australia is excellent and that diversity helps significantly in the development of the financial centre.
MR EGAN: But on the question as to whether we are part of Asia, I think a good answer to that is to look at the Asia-Pacific regional call centres that service all or part of the Asia-Pacific region. Where are they located? They are located in Australia. Almost 50 per cent are located in Sydney. I think some 20 per cent are located in Melbourne, some 20 per cent in Singapore. The rest are scattered far and wide in the region.
The reason they are located in Sydney and Australia is that it is here that you get the depth and breadth of Asian language skills. There is not any other city in Asia or any other part of Asia where you get all of the Asian languages spoken in such quantity as you do here in Sydney.
MR HOCKEY: Can I add to that: that is absolutely right. A good example is a major bank moved a call centre from Osaka to Brisbanesorry to mention Brisbane.
MR EGAN: It is a fine city. It is just that Sydney is better.
MR HOCKEY: It is a good example, because they were running short of Japanese language skills. The Australian government has set up a visa program that allows Japanese students to come and study in Australia and work using their language skills in call centres part time, or full time for that matter. So we have that capacity with our visa schemes to be able to accommodate Bahasa Indonesian, Hindi, Mandarin, Cantonese or Japanese. I defy you to give us any other centre in Asia that can the diverse language skills that Australia has.
QUESTION: Minister Hockey, when overseas chief executives ask you where they should establish their headquarters in Australiasay, they are a wine growing company in the United States and they ask where should they move towhat should you tell them?
MR HOCKEY: I usually refer them to the bureaucrats who are the best people to determine what fits needs. We say to them at a federal government level 'to shop around', to be honest. It depends: many of them usually made up their minds before they approach us.
However, even though I am the member for North Sydney, I am a representative for all Australians. Even though Michael is the Treasurer of New South Wales, he is also an Australian. We work together to promote Australia. There are logical trends for some operations that come to Sydney. It is the biggest city. But there are some good reasons to go to other parts of Australia. It might be the Uncle Ben's went to Albury all those years ago. It might be the case that they might have a better time zone management process with Perth, which is an issue we had the other day with a company who said they wanted to be in exactly the same time zone as Hong Kong and Singapore. Perth was the centre. It really varies. The most important thing is that we all put Australia first.
MR EGAN: I agree with that. If it makes sense for a company to establish an operation in Adelaide or Perth rather than Sydney, that is where I would be encouraging them to go.
MR MAHER: Going back to the advantages of a multilingual society, I guess it is a happy consequence of half a century of intense immigration. What are you both doing to ensure that we remain competitive in that area as a multilingual and multiskilled work force?
MR HOCKEY: Education is the key if you are talking about a skilled work force. There is no doubt that everyone is working to build Australia's educational skills. In fact, I think it was Forbes or it might have been Fortune magazine which ran a large piece in the United States a couple of weeks ago which said that American universities could learn a lot from Australian universities in the way they have sold their services to Asia and other markets around the world. That is exactly right.
Australia has still a very healthy skilled immigration program. The skilled immigration levels are very high. It is difficult to become an Australian citizen. I do not think we apologise for that because you need only to look out the window and see the most beautiful countryfrom our perspective at least that we have been able to be a part of it. But that does not mean we do not open our arms to the rest of the world. Australia has been built on immigration and will continue to be built on immigration.
MR EGAN: What is more the migrants that have come to Australia, particularly in the last 55 years since the beginning of the postwar migration scheme, have been very quick to succeed in Australia. You only have to look at Joe. The sons of the migrants are the people who end up in cabinets and running major companies. No other country in the world would provide those opportunities like we do.
MR MAHER: Can I raise the criticism that Bill Gates raised in Melbourne last week that there is a lack of readiness in Australia in terms of the use of band width and general low level of IT readiness; is that a valid criticism?
MR HOCKEY: I was there and I do not quite remember Bill Gates saying that. He did make a fair point. I think every prophet of cyber space makes this point about governments and industry that you could always do more. That is absolutely right. Every government in the world can do more.
The question is: when you are sitting in government and you have a budget, you have priorities. The priorities are: how do you balance the needs of your people; how do you provide a safety net that some other countries do not? If you walked down the main street of Sydney, you are not likely to run into 20 or 30 beggars, thankfully. There are some cities in the United States where you can see people begging on the street quite regularly. I would say the US government could do more as Bill Gates says we could do more on utilisation of bandwidth.
In fact, we have good capacity in our bandwidth available at the moment. That is because two major carriers in Australia have spent $A8 billion cabling the nation. That cable is, it is fair to say, currently underutilised. I do not think they would contradict that either. The question is: how do we use it? Australia is a great producer of content. We have to improve our content development skills and, in that sense, we have a good bandwidth capacity.
MR EGAN: And much more coming. We currently have four international cable network operators; we have two more coming. One of those, the Southern Cross Project, I am told will increase capacity between Australia and the US by 160 times.
MR MAHER: Ladies and gentlemen, both ministers have indicated they are available for individual interviews after this session. If you have any specific questions or issues you would like to explore with them, they are available. Are there any other further questions from the floor?
MR MAHER: Gentlemen, would you like to make a final summing up?
MR HOCKEY: Have a great Games, enjoy the city and enjoy the country.
MR EGAN: And come back.
MR HOCKEY: With your money.