Minister for Financial Services, Superannuation and Corporate Law
9 June 2009 - 14 September 2010
Interview with Bloomberg, Hong Kong
Thursday, 21 January 2010
SUBJECTS: Johnson Report, superannuation, taxation, prudential regulation, investor manager regime, withholding tax rate.
Minister, welcome to Hong Kong.
Thank you, thank you very much.
The Australian Financial Centre Forum just had a lot of plaudits for the way Australia is going, but also said that you've got to get more competitive on a lot of metrics like taxation treatment for foreign companies as they relate, and also some transaction taxes, and maybe some of the paperwork and bureaucracy. Is this a quick fix for you? Is this a priority to you?
It is a priority. It's not a quick fix, but it is a priority. The report found that we have a lot of advantages in financial services. We commissioned this report to tell us the next steps. We have taken a number of steps to improve our competitiveness as a financial services sector, but what do we need to do next to build on our trillion dollars of funds under management – the fourth largest pool of funds under management in the world? What do we need to do to really improve our competitiveness as a financial centre?
There are 19 recommendations. You're right; some of them go to tax. Really the key word is certainty - tax certainty and clarity – so that people getting Australians to manage their funds or investing in Australia know upfront what the tax treatment is going to be. We get that message loud and clear.
Now how do you stack up against – I'll make no bones about it – the folks here who run this place, the folks down in Singapore? This kind of stuff is not lost on them because we are all competing for sort of the same pie – we want to be the financial hub for Asia. Shanghai has got sights in the mid term; Singapore, you know, make no bones about it, but I don't need to tell the story there. What does Australia have over us and over the Singaporeans?
A number of things. Firstly, yes you are right, there is a competition. We also need to be working together to grow the pie that funds under management Asia takes for the world.
What do we bring to the table? As I say, fourth largest pool of funds under management in the world, a trillion dollars and growing dramatically. It will outpace GDP and grow very significantly because of our retirement system, because of our superannuation system. Nine per cent of Australia's wages need to be put aside every year for our superannuation system. That means we have built great skills in our funds management. We have had to become good at managing money. What we don't do is manage other people's money: only three per cent of money under management in Australia comes from offshore. We manage our own; we don't manage other people's.
Also – without wanting to appear boastful – there are quality of life issues in Australia. It's a nice place to live. As very deftly outlined in your introduction, we are proud of where we live.
I didn't know you were Tourism Minister as well! All my relatives in Melbourne and Sydney will attest to that fact. Half the family who migrated from here went there, as a matter of fact. And folks who may not be familiar with the term superannuation, it is one of these local terms, but basically we are talking about pension annuities and savings down the line.
And were you surprised at all – to be honest with you, that was news to me, I'm pretty much on top of a lot of things but sometimes I need a reminder – the WEF ranks Australia that high up, after the UK?
The superannuation fund is an important part of it, and as you said we saw a lot of learning by doing in managing that. I'm just wondering if you see a strategic opportunity for Australia in what's going on in the North Atlantic region with taxation of banks, taxation of companies. Is Australia going to take a plunge into this?
We are thinking about this on a number of fronts. That is one of the factors and we certainly don't want to go down that road, we don't seem to have those sort of issues. We are not going down that road at all.
Secondly, the Australian financial system has been very robust over the past two years. That was a key factor in us doing so well in the World Economic Forum ranking. We haven't had a run on a financial institution. We have lost no regulated financial institution - and there are nine AA-rated banks in the world; four of them are Australian. That's punching way above where we should be when you consider the size of our economy.
Our prudential regulation works, is well respected, and our banks have been very prudent. We think we've got something to bring to the table.
So if you are looking for a place that has gotten through this crisis pretty well, our real economy has only had one-quarter of negative growth, we haven't gotten into recession and our unemployment rate is 5.5 per cent. Our economy growth is chugging along reasonably well, so we think we have got some things we can bring to the table. We are really pushing the envelope in terms of improving our competitiveness. We are very much open to business, when it comes to financial services in particular.
This is purely non-scientific but there's got to be some argument for being so physically far away from the rest of the world – it takes forever for these problems to reach there.
Can I get back to the tax issue? I have an OECD complex when it comes to this because if you talk to the average Joe in these parts and ask them why you stay here in Hong Kong and why are you still here, they say, well, tax. When you hear about taxes in the high 30s, 40s, 50s in the United Kingdom, United States, Canada and Australia – is that in fact the case when it comes to the industry, when it comes to the portfolio you're responsible for overseeing? Are we talking about night and day or with the exemptions and with some of the entitlements, does that bring it way down and make Australia a lot more competitive?
Well, we think our tax regime is competitive. We are keen to make it more competitive when it comes down to certainty in particular.
Certainly, the Johnson Report found that we cannot go to compete by reducing your top marginal tax rates down to the lowest in the world – that's not the answer to succeeding here. It's about making the tax system as clear, open and transparent as possible; having the investor manager regime in place, for example; extending the offshore banking unit exemption – which is already in place but could be clarified and extended – as noted in the recommendations. These are the sort of things we are working through very seriously.
Okay, what sort of timetable are we talking about for some really noticeable, palpable changes?
Well, we have already started some changes. We have reduced our withholding tax rate for distributions for our funds under management from 30 per cent down to 7.5 per cent, down from the highest tax rate in the world to effectively the lowest.
We have abolished what we call our foreign investment fund, which is some of our tax rules which apply to foreign investments. So we are really making progress already.
In terms of responding to this report, we will be doing that gradually over the next six months or so, bit by bit – some of which we are already implementing, some of which will be longer term.
Thanks for stopping by.