Tony Zappia (Makin, Australian Labor Party) Share this | Hansard source

I begin by acknowledging the service to this House of the member for Herbert, and extend my best wishes to him and his family for their future.

I rise to speak on the Tax Laws Amendment (Foreign Source Income Deferral) Bill (No. 1) 2010. Schedule 1 of the bill amends the Income Tax Assessment Act 1936 to repeal the foreign investment fund and deemed present entitlement rules. The schedule also makes consequential amendments to the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997 and the Superannuation Industry (Supervision) Act 1993 that are required as a result of the foreign investment fund and deemed present entitlement rules. 

In the 2009-10 budget, the government announced significant reforms to Australia’s foreign source income attribution rules. In summary, the reforms mean that the controlled foreign companies rules and the transferor trust rules will be retained and modernised while the foreign investment fund rules and the deemed present entitlement rules will be repealed. The repeal of the foreign investment fund rules has been welcomed by the management fund sector as they contend that the foreign investment fund regime imposes significant costs and an uncompetitive tax burden on Australian fund managers. The reforms advance the government’s commitment to secure Australia’s place as a leading financial services centre in the region and more generally to improve the competitiveness of Australian businesses competing offshore—in fact, it is in respect of that matter that I address my comments on this bill.

The comparative stability of Australia’s financial institutions has become abundantly clear in the fallout from the global financial crisis, when we saw the domino effect of the collapse of one financial institution after another. Of course, that stability was very much increased by the Rudd government’s swift and decisive action to guarantee both bank deposits and bank wholesale lending. The performance of Australia’s financial institutions attracted the praise of international commentators and has been held up as a model at G20 meetings. Worldwide, there are fewer than 10 AA-rated banks and, of those, four are here in Australia. We now have the opportunity to build on that financial strength and stability. We know that in recent years the Asian and South-East Asian regions have emerged as regions of strong economic growth, and we saw that again in reports in the media only this morning. A well-regulated financial institution sector in Australia therefore provides Australia with a unique opportunity to build a leading financial services sector for the region.

The accumulation of superannuation funds over the last two decades has clearly contributed to the growth and strength of Australia’s financial sector. Compulsory superannuation was introduced in 1986, when an agreement between government, the ACTU and industry ensured that, under industrial awards, workers were required to have three per cent of their wages paid as superannuation contributions. In 1987 the assets of superannuation funds totalled $41 billion. By 2007 this amount had grown to $1.1 trillion, and it is expected that by the year 2035 this amount will grow to around $5.3 trillion.

The government’s commitment to increase superannuation contributions from nine per cent to 12 per cent over the next decade as part of the measures associated with the resource super profits tax will significantly add to the balance of superannuation funds available for investment. That in turn will lead to an even stronger financial sector, with more funds for reinvestment in Australia and further employment growth in the financial sector and in other sectors were those funds are invested. The Australian financial services sector has seen very strong employment growth in recent decades. The sector currently employs around 400,000 Australians, which is an increase of around 80,000 jobs in just 15 years.

I said earlier that Australian-based investment managers currently manage $1.1 trillion in assets on behalf of domestic Australian investors. As the Minister for Financial Services, Superannuation and Corporate Law has previously stated in this House, these same Australian-based fund managers only manage $53 billion worth of overseas investments. This means that in the global economy less than five per cent of funds managed by our domestic fund managers are sourced from overseas.

On 26 September 2008 the government announced the establishment of the Australian Financial Centre Forum, headed by Mark Johnson AO, to recommend ways that Australia could take advantage of its opportunity to become a leading financial services centre. The Australian Financial Centre Forum reported to the government, and on 11 May 2010 the government announced its response, which provided in-principle or direct support for nearly all of the 19 recommendations of the report. The Minister for Financial Services, Superannuation and Corporate Law made a statement in the House only some days ago that those recommendations include:

the introduction of an investment manager regime, providing greater certainty around the tax treatment of foreign funds managed by Australian investment managers;

the establishment of an online regulatory gateway, providing domestic and international investors with a one-stop shop for basic information about the Australian market; and

the development of an Asia region funds passport, which would involve a multilateral framework to enable a complying retail investment fund in a country that signs up to the passport framework to offer its products in each of the other signatory countries.

The announcement made by the minister two weeks ago will have been welcomed by the finance sector throughout this country. The announcement went to the heart of an opportunity that this country has ahead of it to establish a major industry—or at least an additional aspect to a major industry—in this country. It is not often that this country is in a position to compete with the rest of the world in a range of sectors. In most cases, we in fact find ourselves somewhat disadvantaged because of either our distance from the rest of the world or other competing pressures that seem to enable other countries to undercut our industries. I refer particularly to the manufacturing sector in this country. It may not be the case that we have seen a decline in that sector over the years, but it is certainly the case that we have seen many of our manufacturing industries relocate offshore.

With the finance sector, however, it is entirely different. It is different because the financial industry does not have to be specifically located in a particular country. It operates on the basis of technology that is available to the world today and from which you can establish a major industry wherever you want in the world. Australia has demonstrated that it has the capability, the stability and the security of our financial sector to become a financial services sector for the rest of the Asia and we should grasp that opportunity. We know from what we have seen in recent years that it will be the Asian area where we see growth occur most rapidly. We know that China has been a country of rapid growth, but we also know that several other Asian countries equally withstood the global economic downturn and withstood it well. We know that those same countries are in a prime position to continue to grow and, as they do, they will also look not only to increasing their relationship with Australia but also to working with countries that have stability within.

The financial services sector has certainly been rocked by the global financial crisis of the last couple of years. We saw that the financial hubs, whether in New York or in London, were very much rocked to the point where there would have to be without question a continuing degree of uncertainty as to whether they are the best places for governments and private enterprise to continue dealing with. I believe the global financial crisis presents Australia with a terrific opportunity to ensure that Australia builds on stability and security and does develop itself as a financial centre for the Asian region.

As part of its package of reforms for the financial services sector, the Rudd government is committing $25 million to establish a regional centre for financial system regulation and innovation. The sector in Australia has been stable and secure, but we can always do better. The establishment of a $25 million regional centre for financial system regulation and innovation is something we should all embrace. Our financial regulatory system in Australia was a key part of ensuring that our financial systems in this country remained stable and secure during the financial downturn across the world. The regulatory system can always be improved. It can always be made better, it can always be streamlined and made easier for the finance sector members to operate within.

We should also never lose sight of the fact that, no matter what industry we are in, we do compete with the rest of the world and, therefore, we need to constantly be innovative in what we do. The establishment of this centre is going to be critical in providing the innovation that is required by the sector as a whole to ensure that it does remain competitive and to ensure that it is able to provide the financial services that we are hoping will come to this country if it becomes a centre for financial services in the Asian region.

I understand that the centre will provide tertiary education and training for financial regulators from Australia and the Asia-Pacific region. I said a moment ago that it is the Asia-Pacific region that I believe will be at the heart of global economic growth in the years ahead. I was pleased to hear the Prime Minister announce only yesterday the new deals that have been signed between Australia and the Chinese government with a number of the mining companies in this country. I have to say that certainly flies in the face of those who are opposed to the resource super profits tax and those who have been suggesting that that tax will drive investment away from this country. Clearly that is not the case, and we saw that with the signing of those multibillion dollar agreements with the Chinese government only yesterday. It will be in respect of other trade matters as well that the establishment of a financial hub here in Australia will benefit the Australian economy and the Australian people.

One of the benefits of having a financial services centre in Australia and the increase of superannuation funds that will accumulate over the years is that this in turn provides the Australian people with a source of revenue that can be used to reinvest in this country. I expect that much of that reinvestment may well be back into the resources sector from which we have heard criticisms of the increase in superannuation from nine to 12 per cent. They will be one of the beneficiaries, because they cannot claim that the resource super profits tax is affecting the superannuation funds of millions of Australians without acknowledging that it is the superannuation funds of millions of Australians that are contributing to their very investments and to the very development of resources.

The Australian government recognises that regulation and innovation of financial markets cannot be separate issues; they must keep pace with one another. A moment ago I was speaking about the establishment of the Centre for International Finance and Regulation here in Australia. That in itself will create additional employment in this country, but it will also ensure that in the future we are not likely to see the kinds of crises and problems that were encountered by governments across the world as a result of the global financial crisis, where governments were consistently being asked to bail out the financial services sectors within their own countries. Better regulations, better training and innovation, which all go hand in hand, will ensure a much stronger sector.

We see announcements being made today by the new British government about how they are going to have to tighten expenditure across so many sectors in order to try and get their budget back in the black. You can contrast that with what happened here in Australia—stable banks, secure banks, a government that acted quickly and a debt and deficit regime that is much lower than most other countries, in fact, the lowest of all advanced economies. What we are seeing in this country right now is growth. With that growth come new investment funds. With that growth comes the need to borrow funds in order to pay for new developments, and that in turn means that we will have a financial services sector that will be more and more important to the future of this country.

The finance and tax laws of Australia are complex. It would be fair to say that most people would have little understanding of their complexities. Whether it is the taxation acts or the superannuation acts, they are very complex laws. Undoubtedly, because of their complexity these laws add to the cost of business in this country and will add to the cost of doing business into the future unless we begin a process of simplifying them. If we streamline and simplify the laws under which companies operate, we not only reduce their overheads—and that will be something that is welcomed by them—but also make them much more competitive.

This bill, with these amendments, does exactly that. It is a bill that will simplify tax laws in this country. It is a bill that will make Australian business more competitive and, in doing so, will put us on the right track to securing Australia as a leading financial centre for the Asia-Pacific region. It is something that this country has been pursuing for some time. The Rudd government has recognised this and is doing what it can to ensure that we do become a financial hub. Disappointingly, I heard the minister make it absolutely clear that the opposition does not support the intent of the Johnson report and does not support Australia becoming a future financial hub in years to come. That is disappointing because we have an opportunity that we should not let go. As I said a moment ago, this bill simplifies our tax laws and makes business more efficient. Those measures can only be welcomed by the business sector of Australia. I commend the bill to the House.

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