Introduction
Good evening.
Thank you to the Chair of the International Forum of Sovereign Wealth Funds, David Murray, Chair of the Future Fund Board of Guardians.
I also welcome the Deputy Chair of the IFSW, Mr Jin Liquin, Chairman of the China Investment Corporation. Unfortunately, the IFSW Deputy Chair, Mr Bader Al-Sa'ad, from the Kuwait Investment Authority, can't be here tonight.
But I'd like to thank all of them for inviting me to address this Sydney meeting; and to the Future Fund for hosting such an important event.
Threats and challenges to the global economy
While it is clear that the worst of the financial crisis and global recession are now behind us, significant sources of vulnerability remain.
Most immediately, of course, sovereign debt concerns in the euro zone threaten to undermine investor confidence in the global financial recovery and lead to a broader repricing of risk.
Greece's current predicament underlines the ongoing legacy of the global recession – as well as the importance of adhering to prudent and credible medium-term fiscal frameworks.
It is worth noting here the role that sovereign wealth funds can play a part of a responsible fiscal framework.
I have just returned from a trip to Uzbekistan, Qatar, the United Arab Emirates and Bahrain. The first part of the trip to the Middle East included four days of strategic talks with senior Ministers, officials, regulators, central bankers and finance industry figures and focused on Islamic finance, banking and insurance.
Importantly I met with officials from the Abu Dhabi Investment Authority, Qatar Investment Authority and Mumtalakat Bahrain Investments while I there.
The discussions were not only about promoting Australia as an investment destination, but also emphasis that Australia is undertaking a process to make sure we offer great opportunities for Islamic banks and financial institutions.
As part of this, I announced the Board of Taxation would undertake a comprehensive review of Australia's tax laws to ensure that, wherever possible, they do not inhibit the expansion of Islamic finance, banking and insurance products.
At the Asian Development Bank's annual meetings in Tashkent, I held talks with a wide cross-section of political and business leaders. Our discussions covered these issues; as well as Islamic finance, banking and insurance and sovereign wealth funds.
Through the G20, the international financial institutions, this forum, and others, Australia is an active participant in reform of the global financial architecture.
In Tashkent, a new forum came into existence. I represented Australia at the inaugural East Asian Summit Finance Ministers' Meeting.
May I also take this opportunity to promote our commercial financial services sector?
Australia as a financial services centre
Australia's financial services industry is one of the world's most sophisticated, competitive and innovative. It is also one of the safest.
At over $1 trillion and forecast to grow to four trillion within 20 years, Australia's pool of investment funds under management is the fourth largest in the world.
The skills that we have developed in managing this massive pool of funds have been a vital factor in the growth of our financial services industry.
The Johnson Report
In 2008, the Government announced a platform to secure Australia's future as a financial services centre, and in January this year released the Johnson Report.
The Report concludes that Australia has an efficient and competitive financial sector, but there are opportunities to expand our exports and imports of financial services to make the sector truly international, such as with Shariah-compliant finance.
The Report also identifies sovereign wealth funds as an underrepresented feature of Australian funds management.
Reforms to codify the sovereign immunity arrangements
As you can see, the Rudd Government recognises the important contribution that sovereign wealth funds play within the global economy.
As such, we've initiated reforms to clarify the sovereign immunity arrangements.
In August last year I announced that the Government will introduce amendments to the income tax law to formalise the existing tax practice of exempting certain income earned by foreign governments and their wholly owned bodies.
These changes will provide greater certainty to foreign governments investing in Australia as to the income tax treatment of 'passive' investments.
In November, last year I released a consultation paper. Legislation is now under development.
We hope to release an exposure draft of the framework rules in June for a further round of consultation and I intend to introduce these reforms into Parliament later this year.
The Santiago Principles
As you know, the Generally Accepted Principles and Practices on sovereign wealth funds, known as the Santiago Principles, were agreed and published in October 2008. In just 18 months, they have become the key international benchmark for best practice and good governance of sovereign wealth funds.
Australia unreservedly accepts and supports the Santiago Principles.
The establishment of the Principles coincided with the onset of the global financial crisis. But rather than weaken them, the crisis underlined the importance of, and strengthened our resolve to achieve, the objectives embodied in the Principles that were agreed in Chile.
I'm pleased that the number of countries formally committed to the Santiago Principles continues to grow, and that their application is beginning to become standard practice.
While voluntary, I encourage all countries with such funds, and also those considering the establishment of their own, to commit to them, to promote them, and to implement them.
Promoting the Principles
As the world economy recovers from the crisis; as countries learn from each other in managing their sovereign wealth funds; – we recognise the importance of continuing to apply the Santiago Principles, and indeed expanding them in due course.
This is also important for countries planning to establish their own sovereign wealth funds.
On that note, I welcome the participation of Papua New Guinea at this meeting. The establishment of their proposed sovereign wealth fund would initially be constituted to manage the revenues from their impressive LNG Project.
I encourage the members of this forum to share their experience and expertise – particularly on the Santiago Principles – with Papua New Guinea and other countries that intend to establish such funds.
Later this year, Australia and Papua New Guinea will be holding an important Ministerial forum, that will discuss the governance arrangements around the sovereign wealth funds being established as part of the LNG project.
I look forward to meeting my counterparts at that forum.
SWFs and foreign investment
I would like to turn briefly to foreign investment issues, I note that prior to the global financial crisis, there was a lot of commentary concerning the perceived risks of sovereign wealth funds – including risks to global financial stability, lack of transparency, and claims about non‑commercial investment motives.
But attitudes have shifted in the couple of years since. The global financial crisis revealed sovereign wealth funds to be a more stable form of investment capital. When global capital markets froze, sovereign wealth funds played an important stabilising role in the reallocation of capital.
And on issues of transparency and investment motives, the work of this forum and the advancement of the Santiago Principles have been instrumental in addressing these concerns. Australia is sensitive to these concerns as both a capital exporter and capital importer, which is why we also have a clear, transparent and robust process of foreign investment review.
Conclusion
The global financial crisis highlighted the increasingly important and significant role of sovereign wealth funds in the economy.
But this role comes with responsibilities.
To the Santiago Principles.
To both the origins and the destinations of your sovereign wealth funds' capital.
And to the global economy.
I ask that you bear these in mind during your discussions over the next two days.
On behalf of the Australian Government, I warmly welcome you to Australia for this event and look forward to reading your Sydney Statement.
Thank you.